Play: What It Means, How It Works, Example

What Is Play?

Play is a slang term that describes the investment action that an investor makes. An investor can make a play to invest in certain stocks or mutual funds. "Playing the stock market" is a phrase used by beginner investors signifying that they have gained access, simulated or real, to the ups and downs of the stock market. A play can result in being a "good play" when the decision turns out positive or a "poor play" when the decision turns out negative.

Understanding Play

Play describes the reasons that support the choice to invest or not. Investing in a stock is in no way a guarantee; there will be information supporting and going against any decision. Much like a football play, a decision is made using the given information at the time. Finding out if it was the right play will be determined at a later time.

The term play is used both conversationally and as familiar jargon in financial reporting and investment articles. It usually describes an investment decision.

To get a better sense of how to use the term play in everyday conversation related to economics and finance, you can look to terms in financial news and reports that use the term in their reporting. For example, in a discussion of technology stocks, financial experts might call technology stocks a "safety play."

This term relies on the idea of the investor as a player; if an investor is risk-averse, they may want to stick with safety plays, with the above example specifically advising these investors to buy technology stocks, which are unlikely to generate large amounts of risk.

Pure Play

You may also come across the term "pure play," as in a pure-play company or a pure-play method. A pure-play company is one that has a sole focus on one particular product or activity. Active investors who want to get behind particular products or industry segments might be interested in pure-play companies.

For example, Starbucks qualifies as a pure play because of its business focus on selling coffee. On the other hand, a company like General Electric, which has several business lines and brands, would not qualify as a pure play.

Pure-play stocks are easier investments to analyze than non-pure-play stocks because their business is related to one area and, therefore, the amount of data to analyze is less. The source of their revenue and their costs come from a single point rather than from multiple areas, making it simpler to determine profit margins, benchmarks, and other metrics. Not only does this make it easier to understand how the business has performed but also to forecast its future profitability.

If the specific business of a pure-play company is going well, returns are expected to be high, because there are no other non-related components of the business bringing drag on sales or profits. On the other hand, pure-play companies can be high risk because by nature they are not diversified. If the market they are focused on takes a negative turn, the company has no other business line to reduce the impact.

Example of Play

For example, take a look at the statements below, which reflect those typically made by investors.

Q: "Why did you buy that stock?"

A1: "It was a book value play because the stock was trading well below its book value."
A2: "It was a long-term real estate play because I believe the property value will increase over the next 10 years."
A3: "It was an infrastructure play on developing nations because the company builds roads in developing countries."

All of the responses are referring to the term "play" as an investment decision made based on certain information.