Picks and Shovels of a Whole New Boom

Commentary In 1839 Swiss immigrant John Sutter forged his way to what would one day be known as California. His dream was to set up a community for farmers and ranchers. By 1848, the wheels were in motion. He hired a carpenter named James Marshall to oversee the construction of his properties. But while in search of a source of lumber to build his dream, he discovered something that would change the course of history—gold. It didn’t take long for word to spread. Within the year some 300,000 people came to California seeking their own fortunes. Unfortunately for Sutter, many of those fortune hunters included his employees and by 1852 he was out of business. But that wasn’t the end of the story. There were some miners who “struck it rich,” as the saying goes. But of those, few of them made it home with their riches. Most of them spent their fortunes on food, liquor, and various other forms of illicit entertainment. But there was one class of entrepreneur who made it big. Jean-Baptiste Charbonneau never did any mining, but became wealthy in the hotel business. Sam Brannan opened a store on the site of Sutter’s Fort and made his fortune selling miners picks and shovels and whatever other equipment they needed. Then there was Levi Strauss who designed a style of heavy cotton work pants reinforced with rivets in the pockets to make them more durable. You know the rest of that story. The entrepreneurial minds that made fortunes were the ones who fed the needs of those hopeful millionaires. And that investing strategy is still valid today. Operating on the Fringes The strategy that made these entrepreneurs wealthy became known as the “picks and shovels” strategy. The first gold miners who went west were, by and large, the ones who profited the most. But unlike them, being first in any nascent industry today is not always a guarantee of becoming the big winner. You have to get it right. You have to know where the industry is headed—where the profits in the industry will be made. And that is often unknowable. It’s a big risk. Companies who reliably make money in any new industry, however, are the ones who can provide for the needs of those entering the industry. The “picks and shovels” companies. Maybe you know where I’m going with this. There’s a new investing gold rush happening today. It’s called the “metaverse.” What exactly is the metaverse? According to Mark Zuckerberg, CEO of Meta Platforms Inc., “It’s a virtual environment. We can be present with people in digital spaces. And you can kind of think about this as an embodied Internet that you’re inside of rather than just looking at.” [my emphasis] It’s clear that Zuckerberg wants to be a leader in this virtual environment. He rebranded his company to say as much. Not only that, Facebook purchased a company called Oculus VR—a manufacturer of virtual reality headsets and games—for $2 billion in 2014. It was a big bet on the future. Despite that, the truth is, the “metaverse” is a pretty hazy term. If you spend a few hours talking to blockchain programmers, Web 3.0 visionaries, and crypto influencers, you’ll immediately realize that this futuristic world we’re calling the metaverse is in its infancy. And, as with any new idea, it’s nearly impossible to know how it’ll evolve and mature over time. But here’s what we know: The metaverse will rely heavily on technologies like virtual reality and augmented reality. And knowing that much is enough for investors to make an educated decision. Whatever the actual “metaverse” evolves into 10, 20, or 30 years from now, the participants in this new virtual world are going to need tools to make that future happen. The “Levi Strausses” of the new market called the metaverse will be the software and hardware developers who offer the tools that will bring whatever the future is to life. Companies like Unity Software, Roblox Corp., and Nvidia. If you want to look towards the future of tech today, look to the picks and shovels companies. Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times. Follow Tim Collins worked for years as a financial advisor before establishing his own hedge fund, one that would acquire shares in companies like Facebook, Twitter, and AirBnB in the private markets before they went public. He now co-authors Streetlight Confidential investment newsletter with Bob Byrne, and his writing and commentary has been featured on RealMoney and RealMoneyPro on TheStreet.com for over a decade.

Picks and Shovels of a Whole New Boom

Commentary

In 1839 Swiss immigrant John Sutter forged his way to what would one day be known as California. His dream was to set up a community for farmers and ranchers. By 1848, the wheels were in motion.

He hired a carpenter named James Marshall to oversee the construction of his properties. But while in search of a source of lumber to build his dream, he discovered something that would change the course of history—gold.

It didn’t take long for word to spread.

Within the year some 300,000 people came to California seeking their own fortunes. Unfortunately for Sutter, many of those fortune hunters included his employees and by 1852 he was out of business.

But that wasn’t the end of the story.

There were some miners who “struck it rich,” as the saying goes. But of those, few of them made it home with their riches. Most of them spent their fortunes on food, liquor, and various other forms of illicit entertainment.

But there was one class of entrepreneur who made it big.

Jean-Baptiste Charbonneau never did any mining, but became wealthy in the hotel business.

Sam Brannan opened a store on the site of Sutter’s Fort and made his fortune selling miners picks and shovels and whatever other equipment they needed.

Then there was Levi Strauss who designed a style of heavy cotton work pants reinforced with rivets in the pockets to make them more durable. You know the rest of that story.

The entrepreneurial minds that made fortunes were the ones who fed the needs of those hopeful millionaires. And that investing strategy is still valid today.

Operating on the Fringes

The strategy that made these entrepreneurs wealthy became known as the “picks and shovels” strategy.

The first gold miners who went west were, by and large, the ones who profited the most. But unlike them, being first in any nascent industry today is not always a guarantee of becoming the big winner. You have to get it right. You have to know where the industry is headed—where the profits in the industry will be made. And that is often unknowable. It’s a big risk.

Companies who reliably make money in any new industry, however, are the ones who can provide for the needs of those entering the industry. The “picks and shovels” companies.

Maybe you know where I’m going with this.

There’s a new investing gold rush happening today. It’s called the “metaverse.”

What exactly is the metaverse?

According to Mark Zuckerberg, CEO of Meta Platforms Inc., “It’s a virtual environment. We can be present with people in digital spaces. And you can kind of think about this as an embodied Internet that you’re inside of rather than just looking at.” [my emphasis]

It’s clear that Zuckerberg wants to be a leader in this virtual environment. He rebranded his company to say as much. Not only that, Facebook purchased a company called Oculus VR—a manufacturer of virtual reality headsets and games—for $2 billion in 2014. It was a big bet on the future.

Despite that, the truth is, the “metaverse” is a pretty hazy term.

If you spend a few hours talking to blockchain programmers, Web 3.0 visionaries, and crypto influencers, you’ll immediately realize that this futuristic world we’re calling the metaverse is in its infancy. And, as with any new idea, it’s nearly impossible to know how it’ll evolve and mature over time.

But here’s what we know:

The metaverse will rely heavily on technologies like virtual reality and augmented reality. And knowing that much is enough for investors to make an educated decision.

Whatever the actual “metaverse” evolves into 10, 20, or 30 years from now, the participants in this new virtual world are going to need tools to make that future happen.

The “Levi Strausses” of the new market called the metaverse will be the software and hardware developers who offer the tools that will bring whatever the future is to life. Companies like Unity Software, Roblox Corp., and Nvidia.

If you want to look towards the future of tech today, look to the picks and shovels companies.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.


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Tim Collins worked for years as a financial advisor before establishing his own hedge fund, one that would acquire shares in companies like Facebook, Twitter, and AirBnB in the private markets before they went public. He now co-authors Streetlight Confidential investment newsletter with Bob Byrne, and his writing and commentary has been featured on RealMoney and RealMoneyPro on TheStreet.com for over a decade.