Pure Play

Podcast Duration: 05:52

Dost aap jab vacation pe chale jate ho, kya aapko Single destination package pasand hai ya multi destination package?

Mai toh Single destination prefer karta hu kyuki mujhe idhar-udhar bhaagna acha nahi lagtha. Chutti pe main beach ya garden mein, nahi toh pool ke paas chillllllll marna chahta hu. Meri biwi bhi mere jaise hi hai, luckily. Lekin mera bhai Kishore … un ko toh 10 din mein 3 to 4 destinations cover karna hi hai. Pura Europe dekh ke aaye 14 days mein! Kishore ka soch hai ki itna paisa kharch kar hi rahe ho toh passport mein kai stamps le ke vapas aana chahiye. Aur vaise bhi leave kaun dega agle saal tak? Ulta mera soch ye hai ki chutti pe gaye ho. Roz office ke liye bhaagna padta hai. Why have a hectic schedule even on a vacation. Better to keep it simple. Focus on one destination and reward yourself with a peaceful break. Dono ka soch sahi hai. It is just a matter of preference.

In a way, pure play companies jo hai, mere jaise hai. I prefer a single destination for my holiday and pure play companies prefer a single line of business rather than having diversified businesses.

Pure play companies ke business, unke reports aur unko news mein follow karna asaan hai. Issi liye bahut investors - especially stock market beginners - find them preferable as compared to diversified companies that have businesses in multiple sectors. Aakhir some sectors are easy for us (as outsiders) to understand. Nahi toh, you might be comfortable understanding a particular sector because you work in that sector. Lekin understanding a large variety of sectors and businesses in order to make informed predictions about stock prices kisi bhi insaan ke liye mushkil ho sakta hai.

Kai investors bolte hai ki un ke liye pure play companies preferable hai because yeh companies often niche business mein rehte hai. When the companies do well, there is a chance that they will do exceedingly well. That means that the investor could in turn potentially earn from rising stock prices or dividend payouts.

Moreover investors say that they feel more confident that they will actually get the returns on their investment in a pure play company because the company is not reinvesting its earnings in other businesses under their umbrella or putting out fires with their earnings from one sector. In other words logon ka yeh soch hai, ki earnings dusre business ko manage karne mein nahi jayega balki investor ko pass-on ho jayega, by way of dividend payout for example.

However, when a pure play company does not do well, or if the sector it operates in is adversely affected, it has no other businesses to bank on. Its stock price could crash altogether. If this happens investors could take heavy losses. Moreover, because it is operating in a small space, the effect of something minor like a new player that eats into demand, a change in taxation or policy…...or social, political or cultural events that affect the sector... could have a magnified impact on the company's business.

Here is a simple example of how seemingly random things have a ripple effect: Peanut farmers are feeling the pinch of the lockdown. Kyu? Koi sing-daana nahi kha rahe hai hai kya lockdown mein? it makes no sense… What's the connection? Aren't peanuts a very generic thing? Well … Bars and pubs are actually the biggest consumers for peanuts and with them being shut, peanut farmers are experiencing a tremendous decline in demand.

This brings us to the flipside of investing in pure play companies. The first, as I just mentioned, is the typical risk associated with putting all your eggs in one basket.

This next one is not so much a downside of investing in single-focus pure play stocks so much as a commonly noticed trend that any investor can potentially work to his benefit. Basically, pure play stocks that are seen as growth stocks and are consequently preferred by growth investors, woh stocks bullish trend mein zyaada popular rehte hai. Bullish market mein pure play companies jo growth stocks category mein hai, they tend to perform better than the market average. Ulta bearish market mein, value stocks ke liye zyaada demand rehta hai. Growth stocks are those that display strong earnings growth. Value stocks are those that are undervalued in the market

So there you have it, a quick and easy lesson on the concept of pure play or stocks of companies that focus purely on one sector. A quick recap: their benefits are potentially high rewards and payouts and ease of understanding their business. Their shortcoming is high risk. A factor to consider is whether the stock in question qualifies as a growth stock or a value stock. And once you have figured that out you want to identify whether the market is bullish or bearish to understand demand-supply economics surrounding the stock.

Ji ha mera explanation quick and easy tha dost lekin stock trading mein "quick and easy" attitude nahi chalega. Hamesha stocks ko theek se research karna, technical indicators istimal kar ke stock ka analysis zaroor karna. Trading karte samey jitna bhi sure ho, stop loss kabhi bhi mat bhoolna. Aur last lekin sabse important: sirf extra paise pe trade karna. Daily life, rent, insurance...aur wife ke gifts ke paise side mein rakne ke baad, jo paisa bacha, ussi paise se trade karna. Apni risk appetite hamesha pre decide karke rakho.

Toh friends, aaj ke podcast mein bas itna hi.

See you in the next one. Until then, don’t stop practicing, and keep the learning going.