A unique way to profit from the social media

Last week, I talked about the challenges the newcomer social media company, Snap, is facing. Understandably social media is hot and everyone wants to make some money from them. Almost every day there are some social media companies newly created, some of which will go IPO for general investors. Trying to determine which one(s) will be successful as FaceBook is really a daunting task since most of them will probably lose money or even disappear eventually. Is there a safer way to ride onto the social media trend without much fear of the failure of individual social media stocks? Sounds impossible but I can offer one idea actually!

Have you heard about the “California gold rush”? It was the time during 1848–1855 that some gold was found in California. Within the short 7 years period of that time, over 300,000 from other parts of the US and even abroad rushed to California to look for gold. Yes, some of them got lucky enough to become very rich by finding good amount of gold but most of them as you can imagine ended up  hopelessly without making much money or even lost more or died over there.  But one type of business really flourished and made a lot of money without even touching any gold: the so-called picks and shovels business. As easily understandable, every gold seeker required some tools (picks and shovels) to dig for gold, right? Even though most of such gold explorers failed, those selling the tools were still making money. In other words, the safest player for almost any industry is the one who produces and sells the tools needed for the industry. If you can find and invest in such companies, the chance of making money is much greater than betting for individual ones directly relying on the success of the underlying business. No difference for the social media business. You need a tremendous luck and tenacity to find and hold up a social media stock like FB for long term before you can see some serious profit from it. But it is probably much easier to hold up a picks and shovels stock that has products you know needed for the social media companies regardless if their business is going well or not. Even better, if you can buy and hold a few picks and shovels stocks that support different aspects of the social media functionality, as you are almost like a fund manager to create a mini ETF for the social media backbone. I can give you a few ideas of such companies: the very mature ones with also good dividend yields are Intel (INTC for chips for almost all the computers) and Cisco (CSCO for routers connecting devices on Internet). More newer ones including Qualcomm (QCOM for chips specific for iPhones], Skyworks (SWKS for chips for mobile devices including connected cars), and Nvida (NVDA for chips for videos important for all the social media arena) and is also producing chips critical for automated cars. Of course I don’t mean they are all cheap but if you spread your money among them and buy them slowly over time, you won’t miss the social media hot trend for sure and safely!