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Opportunities
We shift our focus to external factors when we look at opportunities. Here we try to identify areas of business we think
company is looking to enter, or should be looking to enter. We also look for opportunities to gain market share from competitors, or grow
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
company combine product lines to increase sales? Maybe
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
company could adopt •Changes in regulatory / tax burdens •Strategic investments •Internal efficiencies
Threats
Finally, we need to consider threats to
company. Again, threats can be internal as well as external. In fact, I’ve found that internal threats usually come first, which opens
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
company’s well-being and should be evaluated alongside
external threats. For example, a company that relies on developing innovative products, such as Microsoft or Intel, faces
threat of losing engineering talent every day. This is an internal threat that could easily pave
way for external threats.
Some possible threats are: •Internal obstacles
company is facing. •Financial constraints on
company. •Cash flow problems. •The relative position of
company’s largest competitors. •Technological advances in
industry (if
company isn’t keeping pace). •New technologies that threaten to displace
company’s products. SWOT analysis is a brainstorming activity, and you should learn from it. Focus on
weaknesses and
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
negatives, and ignore
company’s potential. But you should analyze
risks with as much, or more, scrutiny then
opportunities. Opportunities don’t always show up, but somehow risks always do.

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 www.dynamicinvestors.net/index8.html.