Disadvantages of Monopoly Business

In a value investor perspective, selection and investing of a real monopoly business is a dream. They never waste any opportunities to invest on monopoly business whenever the prices are down in the stock market. Invest to a monopoly business is the best advice from great value investors like Warren Buffett. Investors worldwide considered it as a classic advice to invest successfully. However, is there are any disadvantages in investing of monopoly business? Yes, there are some. If invest even in a monopoly business for long term without knowing the real drawbacks of the business, the final result will be the erosion of investor’s wealth.

Why do investors love monopoly business to invest?

A monopoly business mean there will be only ‘a’ product or service available in the market. In a better word “a single seller in a given market”. Rest of all known as “Commodity Business”.

Public generally should go for that and if the product or service not available, public won’t have any option for another similar. It is of course, very difficult to find such product in market but yes, there are still some there. Investing in monopoly business stood as a wonderful advice because of company’s capability to adjust prices depends on inflation. As long as there are no competitors in the market, a monopoly business can increase or decrease prices for their service or product as they wish. Profit per unit would be awesome and there will not be any questioning on their price changes in the market.

Here is how even a monopoly business can be trashed and erase investors wealth:

If required, a monopoly business can reduce the quality of product. As long as there is no question on their product or service, it is depends on the company to decide the quality. Generally they wouldn’t do such, but any of your invested monopoly company has such practices due to lack of management ethics, as an investor you are in trouble because the company existence would be in a question later. Unsatisfied employees generally a known problem for monopoly businesses that can leads to lockout of the company unexpectedly. Because of monopoly company can decided decrease in salary of the workers. This is also comes under the lack of management ethics. And finally, the great danger of any monopoly business, effort required sustaining in the industry. Best example in this kind is, IBM. There processors have monopoly in the market over long time. However, if they stop their continuous research and developments, their competitors like AMD would over take them in the market. For the research and developments, IBM required millions of Dollars per month to sustain monopoly business. If you are an investor to a monopoly company like IBM or Google, you have very limited chance to get wealthy because the profits of such monopoly business generally goes for research and developments than distribute to the investors. Thus the investor can only claim they have a monopoly business investment in their hand but no profits..

In this way, understand your selected monopoly business well then invest. There will be poison in each, even in honey too, if not uses properly. Remember the old proverb, “Precaution is better than cure”.

Sherin Dev is the founder and editor of Investinternals.com Blog. Learn more about him here. Follow him on Twitter @Moneyhacker or be in touch at Facebook . If you have any queries, contact him at investinternals@gmail.com