by Daniel Carter
There isn’t much better advice than that of a successful investor. It’s hard to imagine a professional with more skin in the game than an investor. When they are wrong about their analysis of this crazy and complicated world, they lose money – usually in front of the critical gaze of the public. So, when an investor can conquer the odds and build successful investment strategies in the long-run, you should pay close attention to what they have to say.
Marc Cohodes has been one of the most successful short-sellers in the world for almost four decades. One of his most legendary trades was betting against Lernout & Hauspie, who turned out to be involved in one of the largest securities fraud cases in European history. He has recently come out of retirement to bet against Canada’s housing market. But when he’s not looking at computer screens, Cohodes is raising chickens and tending to his horses on his farm.
Michael Burry is another famous investor that has become interested in farming. Burry is one of the characters depicted in the movie “The Big Short” who rose to prominence after he took on the courageous task of betting against the housing bubble before 2008. After piling up a return of over 400% on the subprime trade, Burry turned his attention to farmland. He now owns very productive farmland with water sources on site, specifically almond farms.
Mark Spitznagel is yet another big-time investor that has turned his attention to farmland. Spitznagel has made a name for himself in the investment community with his “tail-hedging” strategy, which looks to capitalize on rare but large market shocks. He successfully predicted the market crashes of 2000 and 2008. Much of Spitznagel’s time is now spent on his Michigan farm where he pastures dairy goats and produces award-winning cheese.
Obviously, these prominent investors believe that farmland is a good long-run investment. But why? In Burry’s case, the answer, at least in part, may be simple. Almonds are a very water-intensive crop so, when there is a drought, many farmers cut their losses and walk away. This leaves less almonds being produced, so the remaining farmers can raise their prices to gain higher profits.
But I believe there is more to their strategy than taking advantage of temporary supply shortages. These men have all seen just how wrong things can go. They have a detailed perspective on how companies and economies collapse. Are they indirectly signaling to us that society may rupture again, or rupture even worse in the near future?
If civilization fell apart – as it has done many times throughout human history – which investments would have the most value? Cash? Absolutely not. Stocks and bonds? Nope. Gold? Maybe. Guns and ammo? Yes, but force is not always the best solution.
Food and water are always the assets with the most stable intrinsic value, but especially in times of crisis. They are the very foundation of life.
I think Cohodes, Burry and Spitznagel receive joy from maintaining their land and producing valuable goods from nature. But they are also, in my opinion, adding assets to their portfolio that are resilient to catastrophic risk.
I will leave you with this quote from Mark Spitznagel about investing in these uncertain economic times:
“I believe — and history is entirely on my side — that retaining “dry powder” (capital to be invested later) and thus playing the roundabout will be the victorious strategy here. One way or another, we need to position ourselves for much greater opportunities to come. Gold has proven a sound store of value over the long term — with a good degree of trading noise thrown in just to make it difficult. Most stocks, credit, or long duration treasuries are clearly not a terrific idea when these markets are pricing in today’s very artificial, unsustainable economy. Productive, real assets that make things that people need and are reasonably priced regardless of interest rates, inflation, and the state of the economy are, to me, the best store of value these days. So, farmland would be a terrific example, at least where prices haven’t already spiked. The economics, demographics, and ecological implications of agriculture will be profound.”