Investors should not afraid of antitrust investigation on your holdings

antitrust

Most antitrust cases target highly competitive corporation in real world, no matter they are oligopolistic or monopolistic firms.

antitrust

Lesson learned from Huawei case

After President Trump came to power, the United States went to great lengths to blacklist dozens of companies from mainland China, the most famous of which was Huawei. I believe that most people learn about Huawei as a company because of this (unless there is a special reason, such as being in the telecommunications industry or the information communication industry), and the global public will wake up from their dreams as if they have discovered a new world.

It turns out that there is such a company in the world, which can make the only super power country fearful. If you are an investor in the stock market and Huawei is a listed company, you should immediately study what this company is capable of, and why the hegemon of the world wants to put it to death, and then investors should include it as a long-term investment goal. But what disappoints investors all over the world is that it is a pity that Huawei is not a publicly listed company.

I still remember that about 20 years ago, only Cisco (ticker: CSCO) was clamoring that the United States would ban the sale of Huawei’s products, and was fighting a patent war with Huawei, because Huawei and Cisco’s Netcom products of the same level had a price comparison. It turned out to be only half or one third of Cisco. Now, 20 years later, Huawei is so powerful that it threatens the national security of the United States.

The functions and prices of 5G telecommunications equipment are unforgettable for opponents. 5G telecommunications equipment is an oligopolistic market in the world, mainly only Huawei, Ericsson (ticker: ERIC), and Nokia (ticker: NOK) and other major manufacturers.

Obviously, Huawei has greatly widened its moat in the past 20 years. This is the representative of a typical and powerful enterprise! But Cisco still only guards its Netcom product line 20 years ago, and all of this is truthfully reflected in Cisco’s stock price performance.

Since 2001, Cisco’s stock price has only increased by 37.7% in 21 years (Source: Google Finance)

Antitrust is competitiveness badge certified by government

Antitrust cases almost target highly competitive, no matter oligopolistic or monopolistic firms, almost are antitrust targets in real world. This is why as I emphasized in the second chapter of the book “The Rules of Super Growth Stocks Investing”, the first step for investors to find good investment targets is to find a company with strong corporate competitiveness.

If it is an oligopolistic or monopolistic firms are not subject to rate restrictions (so public utilities are not, unless you want dividends), they are almost all good investment targets, so Buffett lists it as the third factor in moat screening. How smart you look, I really admire and think thoroughly.

How to find oligopolistic or monopolistic companies?

The question is how do we find manufacturers with oligopolistic or monopolistic power? I think the best way is to read more financial news, read more industry development reports, pay more attention to the dynamics of the company and its competitors and the ebb and flow of power, so that you can judge whether the company is oligopolistic or monopolistic.

There is no shortcut. For example, the Federal Trade Commission (FTC) in the United States opposes the merger of that company; because the FTC will jump out to oppose it, that is, it is afraid that you will form an oligopoly or monopoly in the market after the merger. This is one of the main tasks of the establishment of the FTC.

My experience in Microsoft

Many years ago, when I was still at Microsoft, the company was very worried that the final judgment of the government prosecuting the monopoly would have a major adverse effect on the company’s future. I was very young at the time, just a small screw with a meager salary. My opinion was quite different from that of my colleagues. I think everyone is overblown the threat. It is a good thing to be sued by a government monopoly, because the whole world has certified you as super competitive. Otherwise, why would the United States and Europe use the power of the government to sue you?

Antitrust cases of four technology giants will close with no hurt

When Steve Ballmer was the CEO of Microsoft, he encountered a major antitrust investigation. Steve Ballmer promised financial reporters that, based on his past experience, the antitrust case of the four major technology giants in the United States will eventually be over, and all of them will be able to retreat. Suggest you read my previous post “Antitrust and governance faced by Chinese and American technology giants“. I personally agree with Ballmer ‘s opinion that in modern times there is only the antitrust case of AT&T (ticker: T), and the final outcome is not conducive to the company being sued.

Investors should take advantage of the plunge to buy more

Therefore, investors do not have to dance with the media. Instead, they should take advantage of the decline in the stock price of the company being sued to enter the market and pick up the bargain. Apart from the market crash, I really can’t remember of a time when the stocks of an oligopolistic or monopolistic company can plummet for several days; the point is that most of these cases will end up in the end.

Two latest cases

I will take two recent companies as examples:

  • On 3/20/2021, the U.S. Department of Justice announced that it would investigate the operation of Visa (ticker: V) debit cards. As soon as the news came out, the stock price fell 6.2% on that day (Visa’s stock price rarely fell more than 3% a day). Two weeks later, the stock price returned to the price level before 3/20/2021 as expected. Visa companies often have to face similar investigations, legal cases, antitrust cases, or fines. This is commonplace for Visa; but so far none of them has had a major impact on its business model, let alone the impact on its stock price.
  • On 3/30/2021, the US FTC decided to abandon the antitrust investigation of Qualcomm (ticker: QCOM) for many years. As soon as the news came out, Qualcomm’s stock price rose by 6.5% in the next week.

Almost no antitrust case will be established

Does anyone doubt the competitiveness of Visa or Qualcomm? So my conclusion is that as long as the market reports that a company is included in the antitrust investigation, the stock price will fall sharply, and this stock is in your investment portfolio or listed on your long-term watchlist. As long as the decline is deep enough, you should ignore the market’s reaction. Instead, you should seize the opportunity and take the opportunity to buy, because the opportunity may be fleeting in a few days.

Disclaimer

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