Disruptive innovation is a powerful force at the hands of sophisticated corporate managers. However, our research indicates that disruption can also be a powerful force at the hands of sophisticated investors. It may be difficult to replicate our hypothetical disruptive portfolio, as it is entirely made up of companies at the time of their IPO. But because disruptive forces are understandable and observable, they can easily be incorporated into otherwise-educated investment decisions.
As disruptive circumstances unfold in a market, investors should beware of companies that appear confounded by disruption and reward those that are educated and poised either to preempt disruption or figure out a way to take advantage of it in their industry.
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