Having once lived in the vicinity where the largest gold nugget in America (49.5kg) was found, I was taught a very important life lesson — only a lucky few get rich from mining for gold; the real money is from selling picks and shovels. Who are the pick and shovel merchants today? How am I being duped? And what does this have anything to do with life? The answer: more than you think.
The entrepreneurial and investment frenzy we are currently experiencing is similar to the Gold Rush in many ways. The idea of “striking it rich”, especially in the start-up and investment communities, draws many hopeful people. But “mining for gold”, that is, actually performing the day-to-day operations to achieve your goal, is really, really hard.
Miners versus Merchants
As Matt Ward stated in his article on Medium, “Early miners realized quickly that [selling] tools trumped mining. Backbreaking work versus selling a shovel, it isn’t rocket science… Wealth always accrues to the facilitators. Companies that assist entrepreneurs and SMEs are among the most valuable in the world.”
These are examples of modern-day pick and shovel merchants. They, themselves, do not bother mining for gold. Instead, they sell tools and help to spread “gold fever”, so that others think they’d get rich from mining for gold, and buy from them.
Some “tools”, like having a computer and internet connection, are necessary for work and modern life; they are not specific to “mining for gold”. However, we do not need picks and shovels for everyday life. Examples of modern-day pick and shovels include “informational products” where you are buying the method to getting rich, investing, or starting a business.
For instance, you can find many courses on “making millions from home”, “successfully investing in the stock market”, and “building your own thriving e-commerce website”. They’ll even have 5-star reviews because of all the fake reviews and sponcon. I personally know a couple people who bought these $2000+ courses and it didn’t amount to anything.
It’s not that the courses were outright scams. Many do work (just like how a pick and shovel can be used to mine for gold). But a lot of them are misleading about the return on investment, how saturated the market already is, and how difficult it would be to enter a saturated market.
Often, they underestimate how much gruelling work it actually takes to achieve long-term success, and that is because many of these merchants have never actually achieved success through using their tools. They instead achieve success by selling you their tools.
From a business perspective, selling shovels makes sense (if you’re the one selling). That’s how Sam Brannan, an actual pick and shovel merchant, became the first millionaire of the California Gold Rush (though he himself never mined for gold). But as buyer, wouldn’t you feel duped buying a shovel from a merchant giving you false hopes or exaggerated promises?
Remember that most miners fared very poorly during the actual Gold Rush. Some of them, having left their family and home, even lost their lives. But the merchants made huge profits from the relatively easy work.
People often ask me which stock or unit trust has good earning potential. And I would tell them that the greatest earning potential lies in the brokers, lenders and fund managers. They always earn a commission or fee no matter how poorly the market performs. Because of this, they will always tell you that “now’s a good time to buy/sell”. The more you trade, the more they make.
Sometimes, buying the tool (the method, the class, the book, etc.) is unavoidable. And the tool itself has educational value. But you have to keep your expectations in check, and not be fooled by the merchant’s promises of success.
There are many modern-day pick and shovel merchants. They shout about the latest big thing, while also trying to sell you their tools. Can you identify any present-day “Gold Rushes” that people are flocking to? Or any “merchants” or “shovels” in your life?