Posts Tagged ‘SWOT analysis’

Exercise effectively* (The Financial Athlete #28)

July 23, 2008

The gym is full of people doing ineffective exercise routines:

1. The middle aged man who desperately tries to lose his pot belly by doing hundreds of crunches a day does not realize crunches will only strengthen his abdominal muscles and do little or nothing to burn the fat that hides them. Meanwhile, another man beside him spends minimal time on direct ab work but has ripped abs because he concentrates on full body exercises such as pull ups, dead lifts, and lunges.

2. The young woman riding 40 minutes on the stationary bike at a leisurely pace while tuned into the TV burns less fat than her healthy friend who breaks a sweat as she maintains a mind/muscle connection in her 20 minute interval training workout on the stationary bike next to her.

3. The college kid who spends half an hour on the bench press and hardly any weight training for his back muscles only bothers to look at his chest in the mirror. In time, he will also notice a rolling in of the shoulders due to an imbalanced body structure.

4. The muscle man who consistently works out two hours a day, a good portion of that time resting in between weight lifting sets which isolate a single muscle. Another muscle man completes a comparable workout in half the time because his routine centers on multiple-joint exercises and supersets. (An example of a superset is triceps extensions followed by bicep curls.)

To save time in my workout I choose effective and efficient ways of exercise. The same holds true for the exercise of due diligence with investing. To begin with, an investment opportunity must meet my initial criteria before I dig deeper into research. This filters out unwanted assets quickly. If the investment opportunity meets my initial criteria, then I implement a system of Pros and Cons based on Michael Porter’s SWOT analysis.

SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. Strengths and Weaknesses are internal factors such as Working Capital and Debt/Equity Ratio. Opportunities and Threats are external factors such as product market trends and competition.

A SWOT analysis forces us to see the whole picture. See the whole picture, and eliminate the tendency to become over-bullish or over-bearish. Due diligence is incomplete without exploring all four facets (Strengths, Weaknesses, Opportunities, Threats). Incomplete due diligence is nearly as bad as no due diligence, because it leads to false conclusions.

*People with heart problems and some other physical ailments should not increase the intensity of exercise with sprints, interval training, fully body exercises, and supersets. Consultant your doctor before doing this.