Glenn Gillen

Capital in all it's forms, be it financial or just your attention, isn't evenly distributed. Nor is the ratio of where it's allocated a constant. Stage theatre may have a resurgence and the cinema box-office may wane. Reality-cooking shows dominate the television ratings as the number of high-quality local dramas seems to shrink. At some point the pendulum swings back the other way and things that were old are new again.

Most people seem at least superficially aware of the phenomenon when it comes to investment cycles: booms, bubbles, and bust. Property is hot, everyone wants to buy a house. Mining was hot, now people aren't quite so sure. The art of the game is to buy low and sell high, having the prescient ability to pick the breakout winner and ride it to the top while cutting your losses on any of the other bets.

Playing a different game

When there's a particular sector that's going through a boom period there's the constant desire to throw your money in and ride the wave, hoping you pick one of those breakout winners. In a property boom you can buy a house, and hope that your house goes up more than the houses around it so that you do better than the average return. Or you could invest in the companies that support that boom, that collect their revenue from the winners. And more importantly the ones that don't win. The entire sector is their customers, and so there's not the same dependence on picking the winner. For a property boom like in Australia we're talking companies like CSR and Boral. Or if you want more direct exposure to actual buildings you've always got actual builders like Mirvac, Sunland, and Stockland. In most of those companies you'd have almost doubled your money over the past 5 years, without the servicing costs of having a mortgage.

That approach of investing is called a pick and shovel play. As best I can tell the term owes its origins to the Californian Gold Rush, and a very shrewd Samuel Brannan that secured all of the pickaxes and shovels at the start of the gold rush and then on-sold them at huge margins because of the monopoly he secured. The term embodies much more than a single extortionate businessman though. It's Levi Strauss. It's Amadeo Giannini. It's Domenico Ghiradelli. It's Henry Wells, and William G. Fargo. Household names in California, if not the world, more than 160 years later. People who built businesses to service an influx of demand, and then turned that into long-term sustainable businesses with global impact that have stood the test of time.

The tech axes

As we live through this once in a generation shift where everything from booking a hotel, hiring a taxi, getting dinner delivered, or finding someone to walk a dog transitions to a wholly digitally delivered experience, investors can try to mine gold by guessing which consumer facing app is going to win. Or they can invest in the tools that make them happen. My own seed investments have been banking on the latter, the cross-cutting problems that service all product builders and benefit from the rising tide.