SWOT Analysis

If you've ever listened to Warren Buffett talk about investing, you've heard him mention the idea of a company's moat. The moat is a simple way of describing a company's competitive advantage. A strong competitive advantage, or a wide moat, gives a company sustainability, which, as investors, we're highly interested in.

In this article, we review a popular tool for evaluating competitive advantage, called SWOT analysis. SWOT analysis should be done on every company we're thinking of making an investment in.

SWOT stands for:

Strengths

Weaknesses

Opportunities

Threats

Analyzing these four factors will help you make better investment decisions. It's a brainstorming exercise, so take your time. A good SWOT analysis takes effort, but the more you put into SWOT analysis the better you will understand the company. Let's look at each factor in turn.

Strengths

First, we look at the company's strengths. What does the company do well? What makes it better than others? What does the company have, or do, that sets it apart from its competition?

These are important questions, and should include aspects of the company that made you consider it for investment in the first place. Look at branding, image, pricing power, size, market share, financial position (balance sheet strength), etc.

Here are some strengths to look for:

The size of the company relative to others in the industry
Balance Sheet strength
Cash flows
Perception of the company's products
Perception of the company's brand(s)
What advantages the company has over its competitors
In general, what does the company do well?

Weaknesses

Now that you've determined how wonderful the company is, it's time to look for the weaknesses. The same questions should be asked when looking for weaknesses. What does the company do poorly, or not so well? What are other companies doing better? What is keeping the company from greater success.

It's important that you don't gloss over this section. SWOT analysis is a brainstorming effort, so don't discount anything that comes to mind. If you perceive a weakness, list it. The weakness you fail to list today could be why your investment turns out poorly next year.

Some weaknesses to look for:

Deteriorating balance sheet
Poor perception of company's brand(s) and/or products
Advantages other company's have?
Lack of management or other employee talent
In general, what does the company do poorly?

Opportunities

We shift our focus to external factors when we look at opportunities. Here we try to identify areas of business we think the company is looking to enter, or should be looking to enter. We also look for opportunities to gain market share from competitors, or grow the company's market to new customers.

But there are more than just external opportunities. There are opportunities within a company that should be considered. Can the company combine product lines to increase sales? Maybe the company has duplicate costs that can be streamlined. Companies can always find ways to do things better.

Some opportunities to look for:

New markets for products
Financial or legal trouble for competitors
New technologies the company could adopt
Changes in regulatory / tax burdens
Strategic investments
Internal efficiencies

Threats

Finally, we need to consider threats to the company. Again, threats can be internal as well as external. In fact, I've found that internal threats usually come first, which opens the door to external threats. Therefore, it's important to do a good threat analysis.

Internal threats aren't usually classified as such, which I think is a mistake. Any internal problem is a threat to the company's well-being and should be evaluated alongside the external threats. For example, a company that relies on developing innovative products, such as Microsoft or Intel, faces the threat of losing engineering talent every day. This is an internal threat that could easily pave the way for external threats.

Some possible threats are:

Internal obstacles the company is facing.
Financial constraints on the company.
Cash flow problems.
The relative position of the company's largest competitors.
Technological advances in the industry (if the company isn't keeping pace).
New technologies that threaten to displace the company's products.

SWOT analysis is a brainstorming activity, and you should learn from it. Focus on the weaknesses and the threats when doing SWOT, because that's what will turn around and bite you after you make your investment. I'm not saying you should look only for the negatives, and ignore the company's potential. But you should analyze the risks with as much, or more, scrutiny then the opportunities. Opportunities don't always show up, but somehow risks always do.

About The Author

Chris Mallon is the editor and publisher of the Undervalued Weekly, a financial analysis newsletter. Chris holds a Master of Science in Finance and is the leading analyst for the Dynamic Investors partnership. He is available at chrismallon@dynamicinvestors.net or the through the website at chrismallon@dynamicinvestors.net.

Indian Head Park taxi to Midway .. Lockport Chicago limo O’Hare

In The News:

The Reachy 2 robot is designed to be friendly and approachable, inviting natural interaction and is perfect for research, education and experimenting with embodied AI.

Kurt "CyberGuy" Knutsson shares several easy ways to keep your credit cards safe from digital thieves while you're traveling this summer.

Arcturus sets up cameras around the edges of baseball stadiums to capture real-time action and generate a 3D digital clone of the game.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

The CyberGuy explains why healthcare organizations are vulnerable to hackers after there have been a half dozen data breaches this year.

Developed at two California universities, the innovative technology combines brain-computer interfaces with advanced AI to decode neural activity into audible speech.

Microsoft patches 12 critical flaws, but six have already been exploited by criminals. Kurt “CyberGuy" Knutsson says updating your system is only a short-term fix.

Tech expert Kurt “CyberGuy" Knutsson discusses how robots can milk, feed and clean cows on dairy farms, boosting efficiency and comfort.

Tech expert Kurt “CyberGuy" Knutsson says quantum internet ensures unhackable security and redefines online privacy and speed.

Kawasaki's CORLEO is a hydrogen-powered, AI-driven rideable robot. Tech expert Kurt “CyberGuy" Knutsson reports on this new way of thinking about off-road transportation.

The CyberGuy breaks down five mobile privacy terms that could make a difference when it comes to keeping your personal information safe.

A groundbreaking robot that's like a real-life Wall-E uses advanced artificial intelligence to replicate natural gestures and deliberate actions with striking accuracy.

If not properly managed, Windows Defender Application Control, a security feature with Windows, could be a potential security vulnerability.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

FlashBot Arm, a semi-humanoid robot, acts more like a human than traditional robots, and you may see it working at a restaurant, healthcare center or hotel.

There are multiple ways to find your missing Android phone after it goes missing. One method involves using a smartwatch to ping your phone.

The NeuroOne OneRF Ablation System is a new device with FDA-cleared technology designed for both diagnosing and treating neurological disorders in one procedure.

The CyberGuy provides tips to protect yourself from criminals who use various methods to make unauthorized transactions using your account information.

New drone technology maps land and water with stunning accuracy, giving researchers and conservationists a new way to understand our planet.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

X hit with massive data breach with 200 million records leaked, including emails. Tech expert Kurt “CyberGuy" Knutsson offers seven tips to help protect yourself.

Atlas robot by Boston Dynamics amazes tech expert Kurt “CyberGuy" Knutsson with its breakdancing moves.

Tech expert Kurt “CyberGuy" Knutsson talks about how Google kept Android SafetyCore details quiet until it scanned users' photos.

Hydrogen trucks debut in Georgia, sparking debates on costs and green freight gains. Kurt “CyberGuy" Knutsson comments on this promising chapter in green logistics evolution.

Tech expert Kurt “CyberGuy" Knutsson says ChatGPT learns from chats, but you should avoid sharing sensitive information to protect your privacy.

SWOT Analysis

Strategic Planning