Investing In Water:10 Tips
If you think water will eventually be more valuable than oil, here's 10 tips for investing in water. If you're not sold that water is the commodity of the future, consider these World Health Organization facts: water scarcity affects one-third of people on the planet; one-fifth of the world's population live in areas where water is physically scarce; and even in areas where there is plenty of rainfall, water can be a scarce resource. So, if you're still thinking about investing in water, here's how to do it:
- Water Mutual Funds. If you don't feel comfortable picking one or two water stocks to your portfolio but still want exposure to the entire industry, you can invest in water funds. These funds typically give you exposure to water utilities, infrastructure companies, and water technologies.
- Government Money. Since most water companies are considered Green Technology, these companies are likely to continue getting assistance for research and development and construction. You can't predict where the money is going to go, but you can look at areas or business of the water industry that have historically been awarded government funds or have had government funds trickle down to them.
- Insider Buying. Like all other businesses, if there is heavy insider buying in a water company, you need to take a closer look at it and see what the reason may be. Likewise, if there is heavy insider selling within a water company that you already own, you should see what is going on.
- Diversify. Look for water companies that have more than one source of revenue. A water utility company that also offers water treatment services will offer more financial stability if one business should fall on hard times; a water utility company that doesn't offer additional services will have a very hard time surviving.
- Think Big. Conglomerates looking to get into the water business are looking to buy up some of most successful companies while they are still relatively small. It's definitely worth a look to see what large conglomerates are acquiring water companies.
- Exchange Traded Funds. For investors who don't want the fees that may come with a mutual fund, there are a number of exchange traded funds that offer a mishmash of water companies.
- Think Global. If you do plan to invest in individual companies on your own, look for the companies that are making firm inroads into emerging markets. The water crisis has already begun in these countries, and the companies that can find a way to solve the problems in these countries will likely play a large role in solving the global problem.
Research and Development. The water companies putting the most money toward research and development now are likely to reap the rewards and contracts years later. This may mean that a a company's balance sheet may be covered in red ink right now, but if you do your research you can find the tomorrow's great water company.
- Water Friendly. You should also considering investing in companies that are water friendly. If water actually does become a scarce resource, the companies implementing ways to be reduce water dependance or be more water efficient will likely see a large push from consumers, and may be worth taking a look at.
- Water Testing. If people are going to be concerned about water quality, then you should consider investing in companies that test water quality. As previously mentioned, you want to find a well-diversified water company, but if water quality is one of the company's area of expertise, then that company is definitely worth taking a look at.