Pick & Shovel Investing Strategy

➡️ A pick-and-shovel investment strategy seeks to profit from ancillary industries that support a hot sector, instead of betting on the hot sector itself.

➡️ It consists of investing in companies that provide the underlying technology or tools needed to produce a finished good, instead of enduring the market risks of investing in a company that makes the finished good itself.

➡️ Also, since most people focus on companies making the final product, they are likely to be expensively valued. Ancillaries, on the other hand, can offer attractive valuations.

➡️ It is pertinent that the ancillary business has a decent market share, and is growing faster than the industry.

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➡️ One way to implement the strategy would be in the electric vehicle space. The Indian EV industry is expected to reach 10 million annual sales by 2030, and people are heavily betting on electric vehicle manufacturers like Tata Motors, Ola, and Hero. One can instead, look at ancillary industries. For example, auto parts makers like Fiem Industries, Sona BLW, Uno Minda, etc., are important ingredients of the EV ecosystem, and investing in them can offer better returns than investing in the final makers themselves.

Note that you should look at many other factors before deciding to invest. The above is just an idea-generation method.

None of the above stock ideas are intended as recommendations. Please consult a registered advisor before buying/selling.

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