Best way to protect capital in stock investing: SWOT analysis
It is especially useful when performing a comparative study on companies.
By ET CONTRIBUTORS | Updated:
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By utilising SWOT analysis, investors can be one step closer to reaching their investment goals.
By DK Aggarwal
Investing in the stock market is considered one of the best ways to accumulate wealth.
But before jumping into investing in a stock, one needs to analyse it. Stock investing can be extremely rewarding if the investment decision is based on fundamentals.
SWOT analysis – an acronym for studying strengths, weaknesses, opportunities and threats – for a stock is one of the most widely used tools to perform a ‘qualitative’ study on a business. Doing a SWOT analysis is similar to brainstorming at meetings, and there are different ways to run them.
It is especially useful when performing a comparative study on companies. At the same time, it can help understand a company’s market position and competitive advantages. It's a valuable way to assess both the pros and cons of a potential investment or business and can help in strategic planning and decision-making.
Strength and weakness’ are the internal factors of a business while opportunities and threats are external. Each area is important individually, but when used together, they make a powerful analytical tool. We can take advantage of opportunities and protect against threats, but you can’t change them. A company with a lot of opportunities has a lot of scope to succeed and make profit in the future. A thorough understanding of the weaknesses can enable a company to eliminate threats that could otherwise catch them off-guard.
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Let us understand this with an example. In 2017, the government launched Bharat Stage (BS)- IV fuel. That meant, thereby, that the sale of BS III-compliant vehicles would be banned across the country. Those automobile companies, which were quick to realise the opportunity, started working on BS-IV vehicles months before the expected launch date. Hence, they became profitable.
10 geopolitical risks looming over markets in 2020
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While many people are making lists of New Year’s resolutions or presents they’d like from Santa Claus, another much more intimidating tally has come out as well.
Morgan Stanley Wealth Management has released a list of 10 geopolitical risks looming for markets in 2020 that are “keeping us awake,” according to authors led by Scott Helfstein.
Some of the scenarios are all too familiar to investors in a year that’s seen its share of uncertainty -- but is on track to end with most asset classes faring pretty well.
While many people are making lists of New Year’s resolutions or presents they’d like from Santa Claus, another much more intimidating tally has come out as well.Morgan Stanley Wealth Management has r..
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Here’s the full list, from most to least likely:
1) Democratic World’s Perfect Leadership Storm
2) Emergence of Competing Trade Blocs
3) China’s Political and Economic Landings
4) U.S. Election Volatility
5) European Stimulus Is Day Late and Euro Short
6) Populism, Inequality and Shareholder Primacy
7) Market Positioning for Japanification
8) Cyber and the Risk of AI-vs-AI Warfare
9) Squeezing the Iran Balloon
10) Gene Editing Goes Wrong
“There is never a shortage of events that could weigh on financial markets,” the strategists wrote. “Most years, investors prove resilient and look through these risks to push assets higher.”
Here’s the full list, from most to least likely:
1) Democratic World’s Perfect Leadership Storm
2) Emergence of Competing Trade Blocs
3) China’s Political and Economic Landings
4) U.S. Election Vola..
Read More
Some of the ideas might seem surprising, like gene editing -- but that made the list given things like the news that a researcher in China had tried to immunize babies from HIV. The recent experiments “may involve questions about what it means to be human,” the report said.
Some of the ideas might seem surprising, like gene editing -- but that made the list given things like the news that a researcher in China had tried to immunize babies from HIV. The recent experiment..
Read More
Others, like emergence of competing trade blocs and U.S. election volatility, will be familiar to anyone who has been paying attention this year. Indeed, the leadership-storm idea and trade-bloc entry were on the late-2018 list also. The strategists even included a recap of their list from last year.
While in 2017, just four of the 10 items on their list went on to affect markets, the 2018 compilation included three that were “important” for markets and four that were “fairly prescient,” with just three missing the mark.
Others, like emergence of competing trade blocs and U.S. election volatility, will be familiar to anyone who has been paying attention this year. Indeed, the leadership-storm idea and trade-bloc entr..
On the other hand, companies that did not do the opportunity or threat analysis properly had to face a lot of troubles as they could not sale the old vehicles. They suffered a big loss on their finished products and inventories.
Once the SWOT analysis is completed, results should be consolidated so that all the positive opportunities — and any negative trends that can affect an investment strategy can be watched. Moreover, a SWOT analysis should be to the point and simple, so as to avoid confusion or over-analysis. Actually, it gives investors an opportunity to look at companies logically.
By utilising SWOT analysis, investors can be one step closer to reaching their investment goals. It can enable proactive thinking, rather than relying on habitual or instinctive reactions. Moreover, it can bear fruits in the form of long-term gains and protect your capital to a great extent.
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Chairman and MD, SMC Investments and Advisors
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
