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Step 1: Great Business/Stock Candidate - Practice 2 - Monopoly

There is no company that is in absolute monopoly position in the United States. But there are some pseudo monopoly companies that can reward stock holders very well in the long term. There are three scenarios for the pseudo monopoly companies.

The first scenario is a company has strong technology advantage for a period of time so that its competitors are hard to get market share from it. If the period is long enough, for example 5-20 years, and the pseudo-monopoly position of the company doesn't cause the government to successfully enforce anti-trust actions against it, then the stock holder will enjoy a very good capital gain. Some examples of this scenario include Microsoft, Google, and Baidu. The products of Windows Operating System and Office software of Microsoft were almost the only products of its type available on the market for a long time. That helped its stock price grow for 42200% in 28 years. In the Search Engine world, Google's market share remains a big percentage since the beginning, and its stock price advanced for about 1200% in 15 years. Baidu's search engine is the absolute monopoly in China, and its share price increased 2700% in 10 years.

The second scenario is a few of companies as a group (usually 2-3 companies) share almost 100% of a specific market. The small group is actually playing a monopoly role in that area. If that business area is a growing one then stock holders can enjoy a good return. Here are some examples.

  • Credit cards business: American Express, Visa, MasterThe credit business is still growing globally.
  • Aircraft manufacturing: Boeing, Airbus
    The market is stable nowadays. The two manufacturers have unique pricing power in this industry.
  • Energy Drink: Red Bull, Monster
    It is a rapid growing market. The two key players already enjoyed good growth for years and the growth seems not going to end anytime soon.
  • Domain name registry service: VeriSign (it is regulated though)
    It is regulated by the government but the contracts with the government allow VeriSign to increase the price reasonably year over year. Also it is almost certain that more and more domains will be registered on Internet.

The third scenario can be found in some countries like China. There are some companies that are authorized privileges to operate in a monopoly way but no profit restriction enforced by the government. The government may be the biggest stake holder of the company. Those are good opportunities for investment. But not everyone is allowed to invest into those companies.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.