Friday, October 20, 2006
The California Gold Rush made millionaires of many men... virtually none of whom ever swung a pickaxe.
Despite the romance associated with young men from back east seeking their fortunes in the gold fields of California, the reality was much grimmer.
Roughly one in 20 quixotic ’49ers returned home richer than when he left, historians estimate. For most, dreams of wealth died slowly in mining camps with names such as Poverty Hill, Skunk Gulch, and Hell’s Delight. Grueling labor, fierce competition, and small gold finds eventually left most broken and penniless, if not dead.
But the flood of prospectors that coursed through northern California in 1849 proved a bonanza for men such as John Studebaker, Philip Armour, and Levi Strauss. Studebaker made a fortune selling wheelbarrows to gold miners, and eventually dabbled in the auto business. Armour, a butcher from New York, opened a meat shop in Placerville, California, and used his profits to become the biggest hot-dog producer in North America. And, of course, we’re all familiar with the story of Strauss, whose durable button-fly jeans were all the rage with fashion-conscious miners.
So, while the history books may belong to the many individuals who risked life and limb working the front lines of the gold mines, the fortunes went to visionaries who understood that it was more hype than rush and knew how to capitalize on it.
That story has played out many times since. It doesn’t matter whether we’re talking about the shopkeepers who sold shovels to gold miners in 1849 or the media conglomerates that sold advertising space to start-up Internet companies in 1999. The greatest fortunes were won by those who supplied the rush and not necessarily by those who participated in the rush itself.
As readers of The Big Trend Report know by now, I believe nanotechnology will prove to be the stock market’s next great gold rush... and to profit from it, we’ve got to own the companies ready to sell wheelbarrows and pickaxes to nanotechnology prospectors.
Nanotechnology offers tremendous potential. As investors become more and more familiar with the process, they will eventually throw money at any stock with the word “nano” in its name.
But, let’s face it, just like most Internet companies in 1999 and most gold miners in 1849, most nanotechnology companies will never earn a dime.
They’ll sap up billions of dollars of investor capital in IPOs. They’ll spend everything they have in an effort to strike it rich. And they’ll fail miserably and become nothing more than a footnote is some business-school case study.
The suppliers to these companies, however, will do quite well.
Best regards and good trading,
Chinese stocks booming... new highs in China Mobile (telecom) and Huaneng Power (electricity generation).
Large-cap media and entertainment stocks breaking out to new highs... News Corp., Walt Disney, and Time Warner.
Semiconductor Index down 6% from Monday’s high.