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Navigating Antitrust Threats: A Crucial Aspect in Building a Resilient Stock Portfolio

Updated: Jan 12

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Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.

 

What are Antitrust Threats?

Antitrust threats arise when a company's business practices or market dominance raise concerns about potential violations of laws against unfair competition.

These laws, also known as competition laws, are in place to maintain fair and open markets.


Potential Triggers for Antitrust Threats:

  1. Dominating a Market: A company holding a significant market share that allows it to dictate prices, stifle innovation, and harm smaller competitors.

  2. Anti-competitive Behavior: Activities such as price fixing, restricting resources for rivals, or leveraging data unfairly to dominate a market.

  3. Mergers and Acquisitions: Deals that may create a monopoly or significantly reduce competition, leading to antitrust scrutiny.


Companies facing antitrust threats can encounter consequences like lawsuits, fines, forced changes in business practices, or even forced breakups into smaller entities (a legitimate concern for investors).


Reasons to Avoid Concentrating on Antitrust-Threatened Stocks


  1. Increased Uncertainty and Volatility: Regulatory investigations and lawsuits can lead to prolonged legal battles, causing unpredictable stock price fluctuations and potential losses for investors with significant holdings.

  2. Changes in Business Practices: Regulatory pressure may force companies to alter their business models, impacting competitiveness and profitability.

  3. Reputational Damage: Negative publicity linked to antitrust allegations can erode consumer trust and investor confidence, further influencing stock prices.



Examples of High-Quality Companies Facing Antitrust Threats:


1. Apple:

Concerns focus on its tight control over its App Store ecosystem, including allegations of app monopolies, high commission fees, and self-preferencing of Apple apps. Recent antitrust lawsuits and investigations in the US and Europe aim to address these concerns.



2. Google:

Antitrust scrutiny for Google revolves around its dominance in online search, advertising, and mobile ecosystems. Allegations include favoring its own services in search results, stifling competition in the ad market, and unfairly leveraging Android's market share. Regulatory actions aim to break up Google's adtech businesses and impose stricter rules on self-preferencing.



3. Meta (formerly Facebook):

The company faces antitrust challenges on multiple fronts, including allegations of monopolizing social media, anti-competitive acquisitions like Instagram and WhatsApp, and privacy concerns surrounding user data. Recent regulatory crackdowns aim to limit data collection and platform dominance.



4. Microsoft:

While not facing the same level of scrutiny as the others, Microsoft is still navigating antitrust concerns related to its dominance in the operating system and productivity software market. Potential issues include bundling practices, app store fees, competition with cloud services like Azure and AI services like OpenAI.



How to Check for Antitrust Threats

1. Quick Google Search:

   

A simple search using "Company name" + "Antitrust" can reveal ongoing concerns under the "news" tab.


For example, a search for Fortinet shows no relevant news, which is a good sign for investors of the company.




2. AI Chatbots:

Utilize AI Chatbots like GoogleBard or BingAI to inquire about potential antitrust threats.


Use a prompt like

"Are there any antitrust threats for “Company name” at the moment that I should be concerned with as an investor of the company?”

Similarly, a search for Fortinet on Google Bard reveals there are no concerning threats.



Remember, these AI chatbot responses serve as reference points.

Ultimately it is critical that we exercise sound judgment when coming up with our own conclusion if the threat is of major concern or not.



How to Allocate Weightage for Stocks Facing Antitrust Threats

Considering the potential risks, it's crucial to determine the maximum percentage allocated to stocks facing antitrust threats.


Personally I am still a fan of and own all of the businesses mentioned above in my portfolio,

however to mitigate the downsides, these are the maximum intended % allocation I will place for each of them.


Stocks

% allocation in portfolio

Apple

7.1%

Microsoft

5%

Google

2.1%

Meta

0.1%

And in the worst case scenario, assuming if all of the stocks' value fall by 70% due to Antitrust Threats,

it will only result in a 10% fall for my total portfolio (my allowed downside threshold).


Formula = (7.1%*-70%) + (5%*-70%) + (2.1%*-70%) + (0.1%*-70%) = -10%


Berkshire Hathaway's latest reported portfolio reveals their portfolio weightage for Apple is at 47% Assessing worst-case scenarios, such as a 70% fall in Apple's value, could lead to a 33% decrease in the entire portfolio.




Conclusion:

In conclusion, while some companies facing antitrust threats may offer high returns, the associated risks are substantial.

Concentrating your portfolio in such stocks exposes you to volatility, uncertainty, and potential financial losses.

Strategic diversification and thorough research are crucial for making informed investment decisions.


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