Buzzword of the Week: Pick-and-Shovel Play

Dig this. According to Investopedia, a Pick-and-Shovel Play is a strategy where investments are made in companies that are providers of necessary equipment for an industry, rather than in the industry’s end product. A pick-and-shovel play, in practice, could be within the oil industry; an investor would purchase stock in a company that manufactures seismic data equipment that exploration and production (E&P) companies need to find new oil and gas deposits, rather than on the E&P company itself.

The expression may have been derived from the California gold rush, where many of those who profited did so by providing the miners with picks, shovels and other equipment needed for gold mining. The idea behind pick-and-shovel plays is that, in the case of E&Ps, for example, it doesn’t matter if the E&P Company finds oil and gas or not, they will still need to purchase specialized equipment either way.

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