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The Myth of Monopoly: Why Big Brands Aren't Always a Safe Bet

Are you ready to learn why investing in large, dominant companies may not be the golden ticket to wealth that you thought it was? Buckle up, because we're about to take a wild ride through the ups and downs of market share and brand power.

Remember the days when Nokia, Kodak, and BlackBerry (RIM) were the kings of their respective industries? They were the cool kids that everyone wanted to be like. But where are they now? Turns out, being at the top doesn't always guarantee success.

It's not just the fast-moving tech industry that's susceptible to change, either. When Kodak was running their film-based business, they never thought they'd be disrupted by new technology. The problem is more fundamental - when a company dominates a market, any new player is going to take a bite out of their sales.

Think about it: when you have a 60-70% market share, like Bajaj Auto did in scooters or Maruti in cars, it's pretty much a given that new players will chip away at that share. For the biggest player in the market, it's nearly impossible to grow faster than the market.

But for a new or smaller player, taking away 1%, 2%, or 5% of the market share can make a big difference. When Tata Motors took over JLR and introduced some great models in Jaguar, they were able to grow sales faster than their competitors because they only had 4-5% market share in luxury cars.

New players can also target niches, like a particular type of paint or dye. They can even tailor their products to specific regions or states, like small players in the detergent, hair oil, tea, or confectionery industries. That's how they slowly nibble away at the dominant player's share.

And when those small players start to gain momentum, the big players like Hindustan Unilever, Dabur, or Marico have to pay a premium to acquire those brands and their market share. If they don't, their own market share keeps getting chipped away.

To make matters worse, new players often cut prices, give discounts, or offer freebies like free service on vehicles or appliances. This creates a headache for the number one company because if they follow suit, they take a big hit to their profits. But if they don't, they risk losing even more market share.

It's no surprise that most big disruptions in a business come from new or smaller players. It's incredibly difficult for a giant to pivot, especially if it means destroying their current cash-generating business. Remember when Kodak had the digital camera technology but couldn't scale it up because it would have destroyed their film-based business? Yeah, we all know how that story played out.

But wait, there's more! Even if there are no major disruptions to a company's business, buying a big dominant company at the wrong price can still result in underperformance over a long period of time. Just look at Coke, which only went up 12 times over 30 years while the S&P 500 went up 16.5 times and Pepsi went up 19.5 times. And in India, even great branded players and number one companies like Hindustan Unilever, Colgate India, and Bata have underperformed for lengthy periods.

So what's the key takeaway here? Buying stocks of companies with large market share and established brands won't necessarily lead you to investment Nirvana. You need to do a whole lot of additional analysis, and even then, having a large market share can be a vulnerability rather than a strength. So read this again, think it over, and then share it with your friends.

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