Picks, Shovels and the New Investment Playbook: How to Position for the Decade Ahead

We’ve covered a lot of ground in this series.

In Part 1, we laid out the macro case: a fracturing global order, rising structural inflation, and a potential regime shift in investment markets.

In Part 2, we zeroed in on energy — the supply shock, the underinvestment problem, and Australia’s emerging position as a trusted exporter.

In this final instalment, we want to step back and address the practical question most readers will have by now: if this analysis is broadly correct, what does it actually mean for a portfolio? And what can history tell us about how to navigate it?

The 1970s: An Imperfect
but Instructive Parallel

The 1970s were not a good decade for most stock investors. The All Ordinaries crashed more than 60% in real terms. The S&P 500 delivered barely any nominal return over 10 years — and when adjusted for inflation, investors lost close to half their money’s purchasing power.

Yet within that difficult decade, some areas of the market performed extraordinarily well…

Commodities broadly surged. Gold rose more than 2,000% across the decade. Natural gas rose by around 600%.

The energy equipment and services sector — the businesses that drill the wells, maintain the pipelines, and keep the industry running — was up roughly 2,000% in the same period that the S&P 500 went nowhere.

The same decade that wiped out passive index investors and crushed the Nifty Fifty growth stocks made fortunes for investors in real-economy businesses.

That is, companies that owned physical assets, had pricing power in an inflationary environment, and benefited from the structural trends of the day.

The Picks-and-Shovels Idea

There’s an old saying in mining: during a gold rush, sell shovels.

The Reason: Companies supplying the tools of the trade often outperform the miners themselves — they generate revenue regardless of which deposit proves richest, and their earnings tend to compound more steadily through cycles.

And the same could be said today.

The energy and mining services sector in Australia is a good example of this principle in action.

Companies that maintain heavy equipment across mining sites, service natural gas infrastructure, and provide technical expertise to the major producers participate in the upside of a commodity boom without the same exposure to individual project risk.

In the 1970s, Schlumberger — one of the world’s largest oilfield services companies — compounded its revenues at 28% per year and its earnings at 36% per year.

Bottom line: Pick-and-shovel businesses thrive when the industry is busy, regardless of whether the commodity price is $50 or $150.

Investments: What to Consider?

As we shift towards this phase, it’s reasonable to ask a few questions of your portfolio…

How much of your super or direct holdings is concentrated in US technology stocks?

What would a sustained period of 4–5% inflation do to those valuations?

Are there Australian resource and energy businesses in your portfolio that might benefit from the trends we’ve described over the past few weeks?

These are the questions to ask — especially given that many Australians hold significant exposure to US growth stocks through their super without fully realising it.

The Strategy

The structural case for a prolonged revaluation of real-economy assets is a realistic one.

The conditions that allowed 40 years of disinflation — frictionless global trade, low-wage manufacturing, integrated supply chains — are unravelling.

The replacement conditions point toward a world where companies that own physical assets, extract real resources, and provide the services that keep complex infrastructure running will be in demand.

Australia is well-positioned for that world. We have the resources, the stability, the geographic proximity to Asia’s growing demand, and an equity market that remains reasonably priced relative to global peers.

Whether you act on any of that is a personal decision. But understanding the forces at play feels like a worthwhile investment.

If that’s piqued your interest and you’re ready to invest in companies leveraged to these future trends, we outline a strategy here.

Until next time.