One of the most fundamental concepts of economics is Supply and Demand. Demand refers to how much quantity of a product or service is wanted from buyers and supply tells how much is available. We can often apply the law of supply and demand to investments to find the next lucrative opportunity. In general if there is low supply but high demand the price will rise. Conversely, heavy supply with weaker demand should lower prices. What happens if you had a resource in abundant supply but it was also scarce? Water actually fits this paradox of sorts.
Most people have heard at one point or another that water covers about 71% of the earth’s surface. Even the human body’s composition is somewhere in the range of 60% to 70% water. Again, although water is abundant it’s also scarce. Over 97% of the earth’s water is seawater and of the remaining 3% that is fresh water, only 1% is available for human use. Saltwater can’t be used for drinking, crop irrigation, or for most industrial applications. Not only is there a global shortage of water but also the demand for it is estimated to double every 20 years!
Investors need to understand where the next great opportunity is before it happens. Hockey legend Wayne Gretzky said it best, “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.” This can be applied to investing in oil over the last century as it has driven the headlines and proven to be investment worthy. While that may not change overnight there are other developments and trends to watch for and the price and supply of water is such an example. Continue reading