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Having Investing Paralysis by Analysis? Start with a SWOT Matrix!

If you have ever had to create a SWOT Matrix for a school project then I am guessing that you are probably triggered by even reading the title of this blog.

Guess what – I don’t blame you!

Truthfully, I am too. I hated doing any sort of SWOT Matrix and it just seemed like a complete waste of time. I actually had a class where we just did a ton of competitive analyses like this and I honestly didn’t think there was a legit benefit to the class whatsoever, until recently…

SWOT stands for Strengths, Weaknesses, Opportunities & Threats. You’re basically trying to summarize the outlook for the company into a nice, concise chart.

Sounds like something that might be useful for investing, right?

When I am looking for companies to invest in, this is basically the exact type of thing that I will do.

My first step typically is some sort of qualitative data like this where I am trying to find companies that do something really well, with few competitors, and look like they’re on a path for long-term, sustained success.

Of course, I will also run these companies through the Value Trap Indicator to make sure that the metrics qualify the company as a potential buy but I will almost always start with the qualitative aspect.

I feel like if you can properly identify and complete a company’s SWOT Matrix then you’re going to have a huge leg up when you’re investing in that company because you’re challenging yourself to look beyond the low-hanging fruit and actually understand the company a little better.

For instance, let’s take a look at this SWOT Matrix for Apple from the Business Strategy Hub:

Personally, I think that even just by reading through this I can get a great idea of Apple and if they might be poised to continue their long-term success. A couple of notes that I have are:

  • Strengths
    • Top Technology – This is imperative for a company to be successful in 2020 and beyond. The world is moving so fast that if you’re not constantly adapting your technology then you’re going to be in major trouble.
    • Brand of Choice – I think this is so true with Apple. I feel like everyone has Apple products and the people that don’t are almost shamed. It feels like if you don’t have an iPhone then you’re almost trying to be different. Just my opinion, but I think it’s such a sticky brand.
  • Weaknesses
    • Lack of Competition – personally, I think this is more of a strength?
    • High Price Products – I think this can be a strength as well if you’re a top brand that people will pay up for, as they do with Apple.
    • Incompatibility with Other Products – this is a major weakness but also, again, a strength. For instance, I will never buy a Mac because I am too used to Windows. But I will never buy a phone other than an iPhone because I am too used to the iPhone. If you can get customer to switch, then this becomes a strength. If not, it’s a major barrier.
  • Opportunities
    • Consistent Customer Growth – This is extremely important, of course, but especially for a company that has the weakness of incompatibility with other products. It shows that they’re either getting customers to switch or they’re getting that first laptop, phone, or wearable user to purchase an Apple product, therefore allowing them to ideally make them a customer for life because it’s so sticky.
    • Smart Wearable Technology – I’ll admit it – I am an Apple shareholder. I am a big fanboy of the company and love learning about them, so the wearables segment is something that I am very aware of and it’s something that’s really helping Apple separate itself from others in the industry. They’re just crushing this area of the business and it’s really just getting going.
  • Threats
    • Market Penetration – I think that this is a really big one because as I mentioned before about the brand strength, so many markets are seemingly saturated with Apple users so you’re going to have to continuously expand your product breadth if you want to keep growing sales with those customers.
    • Lawsuits – There are seemingly nonstop lawsuits now about privacy. Albeit a lot of these are with social media companies like Facebook and Twitter; there is still going to be major discussions around the hardware provider like Apple. In addition, there are talks that these major companies could be forced to be broken up eventually because they’re just becoming massive monopolies that are really making it hard for small companies to compete. I think that this primarily is shown with Apple with their app store as they can really make any decision they want with minimal competition.
    • A threat that isn’t included that I think is major are the ongoing trade tensions. This seems to be a huge one with the constant discussions with China and if there’s going to be major sanctions put in place on Apple and other tech companies. I would have to imagine that Apple is near the top of the pecking order if China were to do this because of the large amount of Apple consumers in China.

It might seem somewhat silly to actually go out and create a SWOT Matrix when you’re looking at investing in a company, but I actually really think that it could be a very beneficial tool in your investing journey.

Typically my process is to do a lot of research on the company and even read the 10K but I sometimes will find myself reading and researching without a plan. Like I have legitimately made it through over an hour of research into a company, feeling like I learned a lot, but not actually feeling closer to being able to make a good investment decision.

A SWOT Matrix really boils down some of the qualitative data to four really important sections that I think that every investor should be able to answer prior to investing in that company.

If you find yourself struggling to do that then the investment is likely not going to be a good investment for you. You need to know what you’re investing in so that you can continue to be a rational investor!

If you’re struggling even starting with finding good companies, I totally understand – it’s hard. It really is hard, but that’s why I lay out my process here for you to hopefully take and mold into your own process!