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.
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.
Know Your Risks
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.