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Summary: "The Big Short" Michael Burry correctly predicted the 2008 housing crash and made a fortune betting against it. That's why we call him "The Big Short." Bury caused a stir recently when it sold almost all of its shares. But he probably sold most of his hedge funds and not all of his wealth. Burry also has considerable personal wealth and continues to invest heavily in certain assets, mainly farmland. So why is "The Big Short" Michael Burry investing in farmland farms?

In today's uncertain world, it is no coincidence that the rich are concentrating their bets on farmland. In an interview with Bloomberg News, Michael Burry said he was investing his wealth in cropland. "I believe that agricultural land with water will be invaluable in the future, and I have invested heavily in this," he explains. The reporter seemed surprised by Mr. Bury's answer and asked what proportion of his portfolio was invested in farmland. Bury answered the following question: "I don't want to give it away, but it's a significant amount."

Farmland is an illiquid asset that investors typically hold for the long term. It's not like a stock that you can buy and sell quickly. When "The Big Short" was released in 2015, the movie said, "The investments the Big Short still makes are all focused on one commodity -- water." That was farmland, and later in the interview, he clarified that the best way to invest in water was through farmland. Food is a way to invest in water, growing food in areas where water is abundant and shipping it to locations where water is poor to sell. And Bury was investing most of his wealth in it. Below, we discuss five reasons why we think Burry is investing so much in farmland:

Exceptional Track Record: Over time, farmland has been one of the best-performing asset classes in history. It has outperformed REITs (VNQ), the S&P 500 (SPY), gold (GLD), Treasury bonds (IEF), and most other major asset classes. A study of farmland, comparing returns over time, found that it was not only more rewarding but also safer. Farmland investors get above-average returns with below-average risk, which is what active investors like Michael Burry are looking for. You will also notice that the above returns are unleveraged. If you buy farmland with some debt, you get a better return.

Inflation Protection: The Earth no longer produces more land, but the products of the land are essential for the survival and prosperity of our society. Moreover, its demand will only grow over time as the population grows and there are more mouths to feed. This explains why farmland has historically been one of the best inflation hedges. Burry often points out on his Twitter feed: Investors can look at the performance of farmland in 2021 and 2022 to get an idea of its inflation resistance. Farmland Investment Partners (FPI), the largest farmland real estate investment trust by acres, believes people will also see farmland appreciating at an asset value of 10% or more compared to last year. That said, the value of farmland assets could rise by as much as 15% or 20% after 2021, making for solid revenue growth. So if you're worried about inflation (like Burry), this is the best way to protect your money from inflation. The income and value of farmland are growing much faster than even the high inflation rate, and there is no leverage. If you add some debt, the returns get even more significant.

Wealth preservation in times of wealth Preservation During Uncertain Times: Because farmland is essential to our society, its income and value remain relatively stable regardless of economic performance. To some extent, it is also resistant to black swans. When the war began, the value of the riskiest assets fell. The war has created significant uncertainty and inflation in energy and food prices. Suddenly there were fears that a third World war would break out, and the economic losses were enormous. But one asset class has been rising: farmland. Ukraine and Russia have traditionally been the world's largest exporters of wheat, corn, and soybeans. Now, their supply chains have been severely disrupted, but people still need to eat, and as a result, we see a massive increase in food prices. Farmland in the United States is filling the gap, so farmland owners are somehow profiting from the crisis. If you're worried that the war in Europe will continue to escalate, American farmland can serve as a safe asset class to protect your portfolio. This is also evident in the performance of FPI relative to other stocks since the start of the war. Look back in history and study other black swans. The great financial crisis of 2008-2009 caused the value of almost all assets to plummet, but farmland held steady and continued to rise in the following years. So did the dot-com bubble, the crash of 2000, and countless other crises in history. Bury is bearish. He sees significant risks in today's world, which explains why he is eager to own a lot of farmland to protect himself.

Future returns are predictable: the amount of productive farmland with good infrastructure and water is limited. Because of global warming and other issues, such as the war in Ukraine, there is less land to produce food every year. The rising demand for food and a rapidly growing population is expected to reach 10 billion by 2050. Second, the middle class is growing faster in emerging countries, and as people get richer, they typically switch to protein-rich diets, which increases the demand for farmland. As long as the global population continues to grow and more people in emerging countries are lifted out of poverty, demand for food will continue to grow, and the limited supply of farmland will continue to appreciate in the long run.

High yield potential: While farmland appreciation is uncertain in any given year, its income is highly stable and predictable, helping you stay patient and focus on the long-term outlook. Some types of farmland yield as little as 3-4%, where FPI buys most of the farmland. But other types of farmland yield as much as 5 or 6 percent. Oranges, nuts, berries, and other fresh produce are good examples. Another farmland REIT company, Gladstone Land (Land), focuses on the high-yield segment of the farmland market. It has long-term leases with tenants at three times net rent, which makes its cash flow highly stable and predictable. FarmTogether, a crowdfunding platform for farmland investment, goes one step further. It mainly targets high-yield farmland but accepts operational risk, increasing average yields. Some of its deals pay 8 percent a year: I don't know what type of farmland Bury is buying, but it's safe to say he likes the decent income it brings in.

How to invest in farmland?
Bury buys farmland directly from the private market, but I wouldn't recommend that to most people. Farmland investment requires a specific skill set, and diversification is key to reducing risk. Farmland is safe if you do an excellent job diversifying according to crop and region. Still, there is a considerable risk if you concentrate because bad weather can ruin your crop in any given year. So unless you have a $10 million investment, you probably shouldn't buy farmland directly in the private market.

I have nearly 10% of my net worth invested in farmland and farmland-related businesses, with most of my investments coming through real estate investment trusts (REITs) and crowdfunding. Both have pros and cons. Farmland REITs offer instant diversification, liquidity, and professional management. In addition, because they have access to public capital markets, they may raise more capital to buy more land over time and thus grow faster, but returns on farmland REITs are meager.

Crowdfunding platforms offer higher investment risk and (potentially) higher returns. Yields on these investments are much higher, often exceeding 8 percent. This is fine if investors are committed to the long term. But it also means you're giving up liquidity and a more concentrated portfolio, which can lead to more volatility. In the end, I found that combining the two works best for most investors.