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The biggest advantage is that shovels are not worth zero in the event the whole thing crashes (and in a gold rush there is a big chance of that happening, by de
by niyikiza 6y ago
The biggest advantage is that shovels are not worth zero in the event the whole thing crashes (and in a gold rush there is a big chance of that happening, by definition). The idea is to take advantage of the upside (to some degree) but also have your downside limited. It's a risk averse investment advice, not necessarily one for maximizing returns in the best case scenario.
- adventured 6y ago> The biggest advantage is that shovels are not worth zero in the event the whole thing crashes (and in a gold rush there is a big chance of that happening, by definition). Gold is more valuable to sit on than shovels and that will always be true, because it's a higher value commodity than the shovels are and it's easier to compete in shovels than gold extraction/production (start-up costs in shovel making is far lower vs resource extraction, and gold mines are a scarcer resource than the shovels). Those shovels are dead inventory if the whole thing crashes. You will struggle to sell them for pennies on the dollar. That inventory tries to drown the shovel maker in the downturn, as they live and die based on constantly turning over their product, inventory. They build up a huge supply to meet the ever greater boom demand, and then get crushed by it inevitably. You see it every time oil booms crash. Go to those oil boom towns and see what happens to the pick and shovel makers and sellers, watch as they start dumping their product at a loss to try to stave off bankruptcy. And it's not that all oil / mine owners do well (much less at all times), it's that that economic tier always captures far more value than the shovel making tier. That's the point.