In Investing, what is a First-Mover?

A first-mover is the name given to an investor who is able to identify and secure shares of stock issued by a new business before other investors see the potential and begin to purchase shares. This status allows the investor to quickly be positioned to benefit from increases in the value of the stock, while also possibly becoming a major shareholder in the new enterprise. Assuming that the investor has the resources to leverage his or her investment in the company, the end result can be a major return on the funds invested. There is also the chance to earn more over the long run as the company expands and the value of each share continues to increase.

Companies are also sometimes referred to as first-movers. This is true when the company leads the way in the establishment of a new market segment. A first-mover often originates or identifies some new technology and moves to quickly become the manufacturer of choice for that technology. For at least a short period of time, the first-mover company has the benefit of being the sole supplier in that market, and could possibly emerge as the major player in that market for a number of years.

Both first-mover investors and companies often enjoy what is known as the first-mover advantage. This is simply the benefit of getting into the new market before others have a chance to do so. An advantage of this type means that the investor can secure as many shares as possible, maximizing the return as the company takes off and stock values increase. By the same token, companies that are considered to be first-movers quickly capture market share, set the standard for customer expectations and general quality, and may become so identified with the market that the company name becomes synonymous with the product.

It is important to note that being a first-mover does not automatically mean that these advantages will follow. In order to maximize this early entry into the new market, it is necessary to have the resources on hand to establish the company or investor as a major player in this new market. If the resources are not available, the chance for gaining that initial advantage quickly slips by, and the investor or company must be satisfied with what is known as second-mover advantage.

Over the years, the opportunity to become a first-mover has appeared often. The first investors in automobiles enjoyed this status, as did those who were able to envision the emergence of personal computers. Companies and investors who saw the potential of the Internet, as well as those who first saw the power of online retailing, can also be considered first-movers.