Picks and Shovels for the New Economy [Fribble] April 26, 2000

Fribble Picks and Shovels for the New Economy

April 26, 2000

There's an old saw that in a gold rush you don't make money by being a gold miner, but by selling picks and shovels to the poor saps heading into the hills with a dream and a mule. Well, there's a gold rush going on right now. Call it the technology revolution, call it the new economy; call it whatever, but it's just getting started and it's going to create a lot more wealth before it's done.

We are in the early stages of a major consolidation period in the "new economy" companies. Companies with no earnings and sci-fi business plans (the miners) are going to have a much harder time of it going forward. Solid, market-leading companies that are integral to the building out of this "new economy" (the pick and shovel vendors) will benefit from a flight to quality even as the "miners" disappear or get swallowed up.

After some early missteps, my approach to investing has evolved into one almost entirely based on "picks and shovels." To wit:

Which Internet companies will win the race? Who knows? Who cares? What you do know is that they will all be buying servers (buy Sun Microsystems), routers (buy Cisco), storage (buy EMC Corp. and IBM), and enterprise software (buy Oracle).

Which big telecom/cable companies will win the bandwidth race? Again, who cares? They'll spend billions on fiberoptic cable, lasers, pumps, switches, etc. (buy Corning, JDS Uniphase, and Lucent) and chips (buy Texas Instruments and Broadcom).

Wireless? Whoever, they'll be buying or licensing technology from Qualcomm, Nokia, and Motorola.

And how will the rest of the world (the "old" economy) continue to improve productivity and stay competitive? By doing more and more of their purchasing and sourcing online (buy Commerce One, Ariba, VerticalNet).

Give or take a few positions, that's pretty much my IRA in a nutshell, and I'm very comfortable with the 10- to 20-year prospects of all the above, whatever might happen to Amazon or eBay or

Disclaimer for the shortsighted: If you're worried about near-term volatility, disregard all the above. Any one of these stocks could be cut in half by an offhand remark by Abby Joseph Cohen. But if one can manage to turn off CNBC and just let these companies do their thing for a decade or two, I am confident that this approach will yield great rewards.