The company was the market leader, able to control price and set the direction of development.
The stock was gold – it just kept going up.
The company was swimming in cash and earnings grew each quarter.
But, then there were some minor competitors that started to nibble away at the market.
Stock Reaction
The company didn’t react to these competitors and they continued to grow. Soon, the competitors were under-cutting prices and introducing innovative features.Your company is starting to look old and tired. They are cruising on a customer base, but not growing.
One day, investors realize this company is no longer the leader and dump its stock in favor of the competitors.
Should you sell this stock?
Sell Stock
The answer is no – you should have sold it long before this point.Companies that ignore changing market realities usually discover their growth cutoff and their stock either stymied or plunging.
Not that many years ago, IBM owned the personal computer market. Those were the days when personal computers were just becoming accepted in businesses.
IBM’s entrance into the market gave PCs creditability and put the company in a position to dominate the market as it controlled the mainframe market.
Low Barrier
With a common operating system (thanks to Microsoft), personal computers became commodities and the barrier for entry began to drop.Compaq, Gateway, HP, Dell, Sony and others soon flooded the market and IBM went from market leader to one of the pack.
If you see your market leader slipping, don’t wait until it has fallen before taking action. Some companies make it back to market leading positions, but many don’t.
