'The Big Short' Michael Burry Bought Farmland. Here's Why (2024)

Michael Burry became famous after the movie 'The Big Short' came out.

He is one of the few investors who successfully shorted the housing market heading into the great financial crisis and he made out like a bandit.

By the time he closed his hedge fund, he had outperformed the S&P 500 (SPY) about 150x since its inception, and that makes him one of the best investors of all time.

Some will discredit this success as just "luck", but the reality is that Burry has made many other bold and successful calls. Just to name a few recent ones:

• He shorted the ARK Innovation ETF (ARKK) in 2021.
• He also shorted Tesla (TSLA) around the same time.
• He was an early buyer into the GameStop (GME) saga.
• In early 2022, he sold his stake in Meta (META) before it crashed.
• Etc...

So no, it is not just luck and he is someone worth following...

But don't follow him just for his short positions.

You should also follow him for his long positions!

In a recent article, I explained that Michael Burry had heavily invested in listed real asset stocks to profit from the high inflation. Today, his largest holding, representing 25% of his portfolio, is GEO Group (GEO), which is the owner of private prisons and mental health facilities. The thesis is pretty simple: Burry fears that the high inflation is here to stay and that the economy will suffer greatly in the coming years. But these facilities are absolutely essential to our society, they generate significant cash flow, and the valuation of GEO represents a steep discount to the replacement cost of these assets.

But another one of his investments that I didn't discuss is Farmland.

In the aftermath of the great financial crisis, Burry did a lot of interviews and he said the following in one of them:

"I believe that Agriculture land with water on site will be very valuable in the future and I've put a good amount of money into that. So I am investing in alternative investments."

When asked how much he is investing in Farmland, he answered:

"I don't want to disclose that, but it is a significant amount."

This interview is now over a decade old, but farmland is an illiquid asset class, and most buyers own farmland for decades. Burry confirmed in 2015 that he is still heavily investing in Farmland. The end of 'The Big Short' movie reads:

"The small investing that he still does is all focused on one commodity: water" (And he has previously said that the best way to invest in water is to buy farmland)

This quote leaves me thinking that farmland might be his biggest investment. It is outside of his hedge fund and so we don't have much data on it, but clearly, he is heavily investing in this asset class.

Why invest so much in Farmland?

FarmTogether, one of the leading farmland investment firms, just released a new study on farmland and I think that it answers this question.

Here are the 3 main reasons why I think that Burry is buying farmland:

Reason #1: Stability During Times of Crises

Burry is what you would describe as a 'perma-bear'. He tends to see the glass half-empty more often than half-full.

He worries a lot about risks like inflation, geopolitics, war, and the broader economy. This is why his largest holding is a private prison stock!

With that in mind, it makes sense that he invests so heavily in farmland.

It is arguably the safest asset there is because:

• It is absolutely essential to the survival of the human race.
• It cannot be inflated away.
• We are not making any more land.
• It generates steady cash flow.
• The demand for food is only rising over time.

And this explains why the value of farmland has historically been incredibly resilient. Its value kept on rising even during the great financial crisis and the pandemic:

Last year, farmland again showed its resilience as it delivered a near 10% total return even as most other asset classes, including stocks (SPY), bonds (BLV), REITs (VNQ), Tech (QQQ), Bitcoin (BTC-USD) and Gold (GLD), lost significant value:

FarmTogether makes the following observation:

"Farmland held its returns much better than the stock market, as was the case in prior recessions. Notably, while the stock market decreased by 19.8% in Q1 2020, farmland returns decreased by just 0.1%, which was farmland’s only negative quarter in 30 years.

The demand for agricultural products is generally inelastic in character, and tends to remain consistent throughout the economic cycle."

So farmland values are stable and provide real diversification benefits to an investor. If you are very optimistic about the future, this may not have much value to you... but if like Burry, you are worried about what the future will bring, then you may want to own some farmland.

This may also explain why Burry is able to take such concentrated risks with his stock portfolio. The stability and safety of his farmland help him sleep well at night...

Reason #2: Inflation Hedge During Times of High Inflation

Burry deletes most of his tweets, but there are a few Twitter pages that track his tweets and take screenshots of them.

If you scroll through these pages, you will find that Burry is very concerned about inflation.

He fears that we could face a lot more pain in the coming years as inflation remains stubbornly high and refuses to come back down.

It then isn't surprising that he likes farmland, which is a near-perfect inflation hedge. According to FarmTogether's latest study, farmland has a 0.97 correlation with consumer price indexes:

We often talk about how gold is such a great hedge against inflation, but in reality, farmland is far better because it produces the most basic necessity: food.

Gold, on the other hand, is much less of a necessity and its value is largely a function of speculation and market sentiment.

Reason #3: Competitive Total Returns

Despite being one of the safest asset classes, farmland has actually been very rewarding over time, outperforming most other asset classes.

FarmTogether looks here at two time periods in their study: from 1992 to 2022 and from 2020 to 2022.

This separation into these two time periods is interesting because it shows you that over long time periods, farmland tends to outperform stocks, bonds, gold, and real estate.

But it also shows you that farmland values stayed stable even in 2020-2022 when the world was hit with unprecedented supply and demand shocks to the global food system. These shocks included reduced demand for biofuel and a drastic decline in food demand by the service sector.

The key to farmland's long-term outperformance appears to be its stability during times of crisis.

Its value grows almost every year and this consistency adds up over time. Stocks, on the other hand, go through cycles and so they may outperform during the good years, but they then lose some of the gains during the down cycles.

In any case, the risk-adjusted returns of farmland are some of the strongest of any asset class:

Burry is an active investor and he is seeking to maximize his risk-adjusted returns to earn alpha. Few assets are better than farmland from this perspective.

How can you invest in Farmland?

Unfortunately, there are few options today for individual investors.

Wealthy people like Burry are able to buy private assets and have enough resources to build a well-diversified portfolio and hire an external manager.

This is also what other wealthy people like Bill Gates are doing.

But unless you have millions to invest, you will be limited to two options:

Option 1: REITs

Option 2: Crowdfunding

Both options present pros and cons and this is why I use both.

REITs are the easiest to access. You can buy shares of a REIT today and gain a small interest in a diversified portfolio of farmland. Moreover, your shares are liquid and there is almost no transaction cost. However, there are today only two publicly listed farmland REITs in the US. Those are Gladstone Land (LAND) and Farmland Partners (FPI). I am not a big fan of LAND because of its focus on permanent crops, which are riskier, and its high exposure to California.

But I like FPI. It is today priced at a reasonable valuation and I think that it will do well in the long run. The main downside here is that your farmland is traded in the form of a stock and therefore, you won't be immune to the volatility of the market and you don't really enjoy the "stability" of farmland.

Crowdfunding is the opposite in a way: it is illiquid, but it is stable.

There are crowdfunding platforms that today specialize in Farmland. FarmTogether is one the biggest, but there are also others like AcreTrader and FarmFundr. I have invested in FarmTogether, but all of these platforms seem quite good.

They find deals, syndicate capital, and then allow you to buy a small piece of private farmland. They then take care of the management and share the returns with you.

This is great because it allows you to really invest in farmland and enjoy all of its benefits (diversification, stability, strong returns, inflation hedge, etc.) and you can do so with a small capital. Moreover, the yields of these deals are often a lot higher than those of REITs. FPI yields only 2% at its current share price, but FarmTogether has deals on their website offering >5%:

The main downside here is the illiquidity. Most of these deals have a 10-year term and there is no guarantee that you will be able to sell your stake prior to that.

So it may make sense if you have a long investment horizon and want to have a farmland allocation in your portfolio. But otherwise, you would probably be better off sticking with REITs.

In my case, I think that a combination of both provides the best of both worlds: liquidity, control, and diversification.

Bottom Line

Farmland has been one of the best investments of all time and I think that it will keep producing attractive returns in the long run.

Wealthy investors like Michael Burry, Bill Gates, and even Warren Buffett are buying farmland and have often discussed its benefits, and yet, most individual investors haven't even considered investing in it.

This is likely because it has been very difficult to invest in farmland until recently, but this is now changing.

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