The dictionary defines a disruption as a disturbance or problems that interrupt an event, activity or process. A market disruption has typically been defined as a situation wherein markets cease to function in a regular manner, typically characterized by rapid and large market declines, according to Investopedia. I would like to take a different look at this. For the sake of this article, a market disruption is when a company brings a product or service to a previously established market that causes a disturbance.
Companies that have caused market disruptions in recent history were Amazon’s entrance to the retail market; Uber disrupted the ground transportation market; Netflix’s disturbance of the movie rental space; Facebook revolutionized the way people interacted and companies advertised; DraftKings disrupted sports, and there are countless other companies that have disrupted certain markets such as Airbub, Apple and Waze.
In terms of investing there are only three real choices:
Blue chip companies and established companies
Companies in emerging markets such as the cannabis market
Companies that have disrupted their market
There are advantages and disadvantages for all three groups:
Blue chip and established companies:
Advantages – Stable companies typically have stable earnings. In market downturns these companies typically remain stable
Disadvantages – Slow growth in earnings. There is more a focus on dividends rather than increase of stock price.
Emerging market companies:
Advantages – Potential of rapid growth, offers the investor diversification of their investment.
Disadvantages – Subject to law changes which could place earnings in jeopardy, competition between companies in the market can cause issues for investor selection.
Advantages – Potential of more growth than a company in some of the emerging markets, early investment gets investor in on the “ground floor” or close to it.
Disadvantages – Stock price may experience violent swings up and down in the beginning.
Companies that disturb the market are great investment ideas, somewhat risky but a great option nonetheless. Every person must make their investment choices based on their situation and it makes sense to make these decisions with the help of a professional who can help you navigate risk, recognize your risk tolerance and build a portfolio suitable for your age and need.
A young investor may have their investment portfolio broken down like this: Blue chips (15%), emerging markets (25%) and market disruptions (60%) while an older investor may have their portfolio set up like this: Blue chips (40%), emerging markets (30%) and market disruptions (30%).
These are examples. Before investing, seek the help of a financial professional.