Market Leaders and Stock Investing

Many investors tend to bet on small companies which still have not established their names on the market and hope that they will soon catch up with the leaders and even get ahead of them.

However, even though there are many cases in which small companies have managed to become really popular, there are almost no examples of a small company that has managed to remove a market leader form its position.

It is true that many market leaders have failed in their activities especially when the market conditions have changed and the corresponding adaptation did not occur. However, this failure on the part of a market leader has been due to its inability to respond to a new challenge, not because a small company has managed to take its position.

Many investors are tempted into investing in emerging market leaders. However, if you stay with the current market leader you are taking less risk, because you are not guaranteed whether the so called emerging market leader will really become such.

When you select stocks of market leaders, choose companies that occupy a significant segment of the sector in which they operate. To be even surer that the particular company will continue to be a market leader you should select companies that dominate their industry segment.

Good examples of market leaders are Microsoft (dominating over 90% of the personal computers industry), Google (dominating the Internet search market), Wal-Mart (dominating the retail business) and more.

However, you should not interpret our examples as a recommendation for investing in these companies. These are just examples of market leaders, which can hardly be rivaled by any of their competitors and even by a combination of some of the other market participants.

The main point you should understand is that such market leaders may lose their market position not because some small company will remove it from the top. The market leader will most probably fail because it will not manage to adapt to the changed economic circumstances.

Since market leaders occupy top positions, their price may be too high for a small investor to afford. Additionally, you should not delude yourself that you will be able to buy low and sell high.

However, market leaders are not insured against price volatility. So, you should be very observant and try to hit the moment when the company's stock price has fallen and is about to rise.

Finally, when you select investing in a market leader you are investing under the assumption that such a market leader will maintain its market position. No matter how sure you are that this will happen, you should not put down your guard and leave your money on the market's discretion.

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