7 Powerful New Year Resolutions For Stock Market Investors

7 Powerful New Year Resolutions For Stock Market Investors!

7 Powerful New Year Resolutions For Stock Market Investors!

A new year always excites everyone. It’s time for the people to make different personal and professional resolutions like to learn a new skill, learn how to swim, join the gym, try martial arts, create a new blog, explore a new language/country, start maintaining a journal, etc.

I’ve always loved new years and enjoyed making plans for the next year. This time also I’ve made a few resolutions. Professionally, this year I’m planning to expand my team, add new interactive features to our android app and become more active on Youtube. Personally, at the top of the list is to travel to three new countries and learn the Spanish language by the end of 2020.

Anyways, stock investors are ordinary people and hence, they also like to make resolutions for their new investing journey. However, if you an equity investor but do not have made resolutions for the new year yet, then we’ve got you covered.

In this post, we are going to discuss seven powerful new year resolutions for equity investors. All these resolutions are designed to make you a better investor by the end of the calendar year.

7 Powerful New Year Resolutions For Equity Investors

Here are the seven best new year resolutions for the Indian equity investors. I would recommend you to challenge yourself and accept as many resolutions (out of seven) as possible.

1. Save enough, Invest more

This is something that most youngsters struggle with. Although the older generation is doing much better in the art of saving, however, when it comes to intelligent investing — they too are not much mature.

If you are struggling with savings, plan to optimize your expenses this year. Track your spendings and perfect them wherever possible in order to increase your savings. However, do not just stop there. Invest those savings in different investment options based on your needs and risk tolerance. For beginners, investing in blue-chip stocks are a good option to get started.

2. Start goal-based investing

investment goal

Goal-based investing is a new way of wealth management where the individuals focus on attaining specific objectives or life-goals through their investments. Here, before starting to invest, the individual tries to answer the question- “What exactly are you investing for?”. The best part about goal-based investing is that here the investors do not focus on getting the highest possible returns. But the aim of this investment is to reach the desired returns that meet their goals.

This year, switch from the traditional investing to goal-based investing. Set a specific goal and start investing to achieve it. This goal can be owning your new house, funding your business venture, corpus for your kid’s education/marriage, retirement, travel fund, etc.

3. Increase your circle of competence

circle of competence

Because of different background, qualification, or experience, everyone has built up a greater knowledge in a specific area. In this certain field, these people have the expertise and hence, have a significant advantage. This is called the circle of competence.

The circle of competence might vary from people to people depending on the criteria mentioned above. For example, a doctor might have expertise in medicines, healthcare or pharmaceutical and he can consider this area as his circle of competence (COC).

This year, make a resolution to increase your circle of competence.

For example, let’s say you might have been ignoring tax saving mutual funds or ELSS or any other investment option just because you were not competent earlier. But this year, spend some time and effort to get comfortable in those investments.

Even for stock investors, there might be different industries or sectors that you may be ignoring. This can be because you do not have good knowledge of that industry and hence not inside your circle of competence. This year, learn those new industries and expand your circle of competence.

4. Be consistent

Consistency is the key to build long-term wealth. If you invest in equities just in a bull market and shy off during the bear market, it’s definitely not a good strategy. Bulls and bears are the part of the market and stocks are characterized to go up and down.

This year, make a resolution to become consistent in your investments.

If you have got a monthly SIP, then consistently keep investing in that plan. If you are a direct stock investor, then fix an allocation of money that you’ll invest in the market throughout the year, whenever you find the best opportunities. Overall, to win the game, you need to stay in the game. And that’s why you need to be consistent in your investment plans.

5. Become more Socially Responsible Investor

Socially Responsible Investing or SRI is choosing to invest in stocks that provide a financial gain as well as do social good. For example- investing in companies promoting health, cleaner energy, healthy foods, etc. The companies are evaluated based on the ESG index: environment, social justice, and corporate governance.

Being an investor gives you a lot of power in the financial world. This year, make a resolution to realize the power and influence you have as share investors to make a positive impact on society.

Corporate Social Responsibility (CSR) - What does it actually mean cover

6. Continue your education

The stock market is very dynamic and things keep on changing very fast here. New technology, a new sector, new research tool, etc. And that’s why the biggest resolution that you need to make this year is to continue your education.

This doesn’t mean to go and enroll in a university. You simply have to keep learning more. Whether it’s through courses, seminars, workshops, books or youtube videos, it’s up to you. But make sure that you keep on learning. One best way to continue your education is by taking a resolution to read at least one investing book each month. This is not a tough resolution and easily achievable. If you are not sure which books to read, here is a list of ten must-read books for stock market investors.

7. Diversify to other investments

This is the last resolutions to make this year. No matter how good you are in equities, do not invest all your money in the market. Stock market investments are subjected to market risk. And if you’ve allocated all your money in the market and it doesn’t perform well (because of whatever reason)– you are doomed.

This year, make a resolution to expand your investment options and look into alternative investment options. Maybe investing in real estate or diving into startups as Angel investor. Diversify your investments and reduce the potential risks.

Closing Thoughts

The new year is the best time to ‘make the change’ or ‘be the change’. Whether you want to meet your needs/goals or become a better investor, this is a great time to start working on it. Through the new year resolutions, take your investing to the next level this year. I wish you all the best and a happy new year 2020!

Dividend Growth Investing - A Beginner's Guide

Dividend Growth Investing – A Beginner’s Guide

In this article, we are going to discuss Dividend Growth Investing. First of all, if you are not familiar with the meaning of dividends and want to learn what exactly are dividends, their pros and cons, please read this article. I’m confident that it will be helpful to you.

Today, we’ll take our earlier dividend investing discussion to the next level and understand what exactly is dividend ‘growth’ investing and why it is an amazing tool to make money from the share market for the passive investors. Here are the topics that we’ll discuss in this article:

What is Dividend Growth Investing? And how it differs from Dividend Investing?

Dividend investing in an old and proven formula for receiving money from your investments and building wealth. It means buying shares of those companies which pay good dividends.

When you invest in dividend stocks, you get this money directly credited in your bank account as dividends. By purchasing stocks, you’re a shareholder of that company. And hence you can enjoy the hard work of the CEOs and their employees of big corporations and earn dividends.

Next, dividend growth investing is a sub-set of dividend investing. However, the major difference is that here investors not just look at the high dividend-paying companies but also at the growth rate of the dividends and the company.

As growth is the measure of financial health, Dividend growth investing involves collecting the shares of fundamentally strong companies with a high annual dividend growth rate. As a thumb rule, the growth rate should be equal to or higher than inflation.

For example, if a company gave a dividend of Rs 10 per share last year, Rs 11 per share this year and expected to give a dividend of Rs 12.5 per share in the next year, this company can fall into this category. Anyways, the dividend growth investors look at more than at least five years of growth history while picking the stocks. Moreover, the dividend growth will not always be a linear curve but will be full of ups and downs. Nevertheless, the overall trend of dividend growth should be positive.

In short, the dividend growth investors do not want just a high dividend but growing dividends over time.

dividend growth investing stocks

Dividend Growth Stocks Characteristics

In which scenario will you be able to sleep better?

Knowing that you’re getting high dividends right now, but the dividends may fall in the future as the company is saturated. Or, the other scenario where you are getting decent dividends and have confidence that it will pay more dividends in the future as the company is continuously growing its revenue and profit.

A few characteristics of the Dividend Growth Stocks are:

  1. A strong business model with a well-managed and reliable board of directors.
  2. History of a shareholder-friendly company i.e. a company with regular dividends and no dividend cuts.
  3. Dividends continuously growing for the past few years.
  4. Strong Financials: Continous healthy growth in Topline and the Bottom line of the company’s income statement and cashflows.

These are the signs that reflect the company’s ability to grow and maintain solid cash flow to give regular dividends to its investors.

Examples of Dividend Growth Investing Stocks

For example, if you want to understand dividend growth investing, here are the examples of a few stocks whose dividends have been continuously growing for the past couple of years:

NameLast Market PriceMarket Cap (in Crores)Mar-14Mar-15Mar-16Mar-17Mar-18Mar-19
National Aluminum Co.₹42.35₹7,901.00 ₹1.50₹1.25₹2.00₹2.10₹4.28₹4.16
Bharat Petroleum₹492.00₹1,06,727.00 ₹5.67₹7.50₹10.34₹21.68₹19.05₹17.24
Vedanta₹147.15₹54,699.00 ₹3.25₹4.10₹3.50₹19.45₹21.20₹18.85
Hero MotoCorp₹2,308.00 ₹46,108.00 ₹65.00₹60.00₹72.00₹85.00₹95.00₹87.02
Tata Steel Ltd₹421.00₹47,431.00 ₹10.00₹8.00₹8.00₹10.00₹10.00₹13.00
Infosys₹714.00₹3,04,054.00 ₹15.57₹15.83₹12.97₹13.77₹22.01₹21.70
Bajaj Auto₹3,220.00 ₹93,188.00 ₹50.00₹50.00₹55.00₹55.00₹60.00₹60.00
Tata Chemicals₹654.00₹16,661.00 ₹10.00₹12.50₹10.00₹11.00₹22.00₹12.50
Hindustan Zinc₹206.25₹87,147.00 ₹3.50₹4.40₹27.80₹29.40₹8.00₹20.00
Power Grid₹186.95₹97,805.00 ₹2.58₹1.31₹2.31₹4.35₹5.25₹8.63
This table shows the Adj. Dividends Per Share for the given stocks from 2014-19 | (Data Source: EquityMaster)

Benefits of Dividend Growth Investing

We all know that holding good stocks for the long term can help build a huge portfolio. But what if we get regular dividends along with it. This can reduce the burden of timely selling your stocks to book profit. As dividends are continuously pumped in your account, you do not have to worry about the stock market price fluctuations. Moreover, here dividend re-investing can create wonders.

Here are a few of the common benefits of dividend growth investing:

  1. Dividend growth investing can be a major source to build long-term wealth to create passive returns.
  2. They can help you to get returns no matter how stocks are performing. And hence, dividend growth investing helps to avoid the biggest threat of getting no returns because of stock underperformance.
  3. Investors also get tax benefits while investing in dividends. It helps in minimizing taxes as dividend tax rates are lower compared to the regular capital gain taxes. Dividend earning up to Rs 10 lakhs is taxfree in India.

How to get started with Dividend Growth Investing?

There is a common misconception that high dividend yield means high returns. However, this may not be true and sometimes high yield may also represent a depressed stock.

Dividend Yield vs Dividend Growth:

Dividend yield = Dividend per share / Stock price per share

High dividend yield can be either because of an increased dividend payout or decreased share price. If the yield is high because the share price of that company has fallen significantly, it may also represent a value trap. Here, the stock may appear as a value stock because of low valuation. However, the main reason for its low valuation can be its poor performance or bad future prospects. Overall, high yield doesn’t refect a fundamentally strong dividend stock.

Further, also check the dividend payout while researching dividend growth stocks. Payout should be sustainable and growing. If a company offers a solid record of increasing payout per share on an annual basis, it is way better than a company giving a high dividend for just that year.

Dividend payout = Dividends per share / Earnings per share

As a thumb rule, a very high dividend payout is dangerous as it means that the company is giving away the majority of its profits as dividends and not retaining enough. A company generally distributes the majority of profits only when it does not have much growth investment opportunities. Typically, a payout ratio of more than 80–85% may reflect a dividend fall or cut in the near future.

Also read: How to Plan Your Passive Income The Right Way?

Summary

Dividend growth investing is an insanely powerful way to build passive wealth by investing in stocks. Moreover, as most dividend growth investors are long term investors, time is their best friend. A few common factors to check while investing in dividend growth stocks are dividend yield, payout ratio, and dividend growth rate. Apart, the company should also be well-managed and should have a decent financial growth rate.

10 Best Personal Finance Books Of All Time Cover

10 Best Personal Finance Books Of All Time!

10 Best Personal Finance Books Of All Time!

“Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.”  -Dave Ramsey

These wise words of David Ramsey reflect the necessity of everyday lives, that is, learning about healthy spending habits and better ways of investment to lead a financially sound life.

Today in this world of never-ending expansion of economies, rise in prices, and increasing demands, individuals suffer from financial problems like debts, losses and increasing expenditure. To understand more about better ways of budgeting and inculcation of financially sound habits in order to overcome these problems, you should read books on personal finance where you can learn all about your personal income, expenditure, and savings.

10 Best Personal Finance Books Of All Time

Given below are the top ten books on personal finance which can shape your mind towards the same.

1. Rich Dad Poor Dad by Robert T. Kiyosaki

rich dad poor dad by robert kiyosaki What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! by Robert T. Kiyosaki- You should always start with the best and the consistently number one ranked book on personal finance has undoubtedly been this Kiyosaki’s masterpiece.

The book talks about two different dads living two different lives altogether. One dad is rich and the other is comparatively poor. The book busts the misconception of relating highly educated to being rich and vice-versa. The book beautifully explores the utility of investment and how you can save money by working for it to make the money work for you later. The lucidity of the book makes it easy to read and understand. It definitely helps in improving your financial intelligence.

2. The Millionaire Next Door by Thomas J. Stanley & William D. Danko

the millionaire next door

This book is great for beginners who have just entered the realm of personal financing. The book is simple and easy to understand. It talks about the rudimentary concepts and instructions that should be followed and kept in mind while learning about personal finance. The author talks about establishing a healthy relationship between you and your money. Establishing goals are very important. You should choose your aim wisely and work for it.

3. The Total Money Makeover: A Proven Plan for Financial Fitness by Dave Ramsey

the total money makeover

Well, we started this article by quoting David Ramsey and there is no reason as to why he should not be making it to this list. He has written one of the finest financial works for especially the young lot who wants to start investing and make money. Total Money Makeover talks in length about creating a well-toned budget by employing healthy money habits.

He talks about flabby expenses that are unhealthy and can push you into unending debt cycles. According to him, to be financially fit, you need to cut out those extra expenses carbs and stick to fat-free savings to get a total money makeover!

Also read: 7 Best Value Investing Books That You Cannot Afford to Miss.

4. The Money Book for the Young, Fabulous, & Broke by Suze Orman

The Money Book for the Young, Fabulous, & Broke by Suze Orman

This book on personal finance is written by a financial expert whose main focus is on the present generation who are suffering the so-called “Generation Debt”.

According to Suze, this Generation Debts accounts for people in their 20s and 30s who are graduating from their colleges with a heavy load of education loans and other student loans. They are stuck in a financial environment where the money is not generated easily, employment is not for all and therefore, they should do something to take the matters into their own hands to secure their future and make money. This book is known worldwide for its relevance and the present problem it touches that is faced by young people.

5. Think and Grow Rich by Napoleon Hill

Think and Grow Rich by Napoleon Hill

This book is very inspirational for those who want to take up their lives to new heights, those who are not afraid to act to further their lives and reaching the goals they had set. Despite the old age of the book, it contains highly relevant lessons for each one of us. It talks about the way in which you can acquire wealth.

The author highlights the importance of planning and budgeting in order to amass wealth. Book also mentions a number of achievers and their success stories. The author also talks about the need for persistence which makes all the difference between a success and a failure and most importantly, the emphasis on knowledge acquisition before wealth acquisition which is truly marvelous to read!

6. Thinking, Fast and Slow by Daniel Kahneman

Thinking, Fast and Slow by Daniel Kahneman

Daniel Kahneman who has been a recipient of the Nobel Prize has worked on this book as a reflection of his own life. This book talks about the decision making processes taken p by our mind. He talks about the capabilities of a human being when it comes to thinking. He differentiates this human mind into two systems where one is fast but emotional and the other is slow but more logical.

Through his book, Daniel tries to balance these two systems and bring about a synthesis which is better judgment and decisions. He talks about the benefits of slow thinking and how it helps in reaching to better and more reliable decisions. Lastly, he tries to cover the importance of harvesting distinct personal and professional lives and safeguarding of both.

Also read: 10 Best Mutual Fund Books Of All Time!

7. Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth by T. Harv Eker

Secrets of the Millionaire Mind- Mastering the Inner Game of Wealth by T. Harv Eker

This book by Eker acts as the bridge between aiming at success and achieving it. It is for those who believe in doing rather than just saying. This book explores mind-boggling questions like why some people become rich easily while others struggle to reach their level. Is there something different in their education or skills or training or work habits? Or is it just good luck for them? Such questions will really trigger your mind into thinking.

Eker talks about achieving success by using the blueprints of your personal money in your subconscious minds. It is these blueprints that will determine anybody’s financial lives. If your blueprint does not aim at making high levels of success, you will never be able to earn big money. It is that simple! Similar such ideas have been touched upon.

8. The Wealthy Gardener: Life Lessons on Prosperity between Father and Son by John Soforic

The Wealthy Gardener- Life Lessons on Prosperity between Father and Son by John Soforic

Do you know why this book is special? This book is special because it was written by a financially independent father for his financially dependent son. It will give you a glimpse of their lives where the father is educating his son on how to pursue his goals and further his interests.

The book talks about amassing wealth by earning excess money and saving. It talks about the ways in which one can overcome any hurdle that can land him inside a debt trap and wage slavery. He describes ways in which you can transform your financial weakness to strengths and how you should sense each opportunities and troubles before they come knocking your door.

9. The Richest Man in Babylon by George S. Clason

The Richest Man in Babylon by George S. Clason

This is a classic book when it comes to books on personal finance. This book has been appreciated by millions. The author extensively talks about the ways in which you can accomplish personal wealth. He talks about personal financial planning. The language is simple and easy to grasp.

This book is more like a guide that tries to address the present-day financial problems that you may be suffering which is offsetting you from the path of success and accomplishment. Going through the Babylonian time and Babylonian stories of rages to riches will definitely boost you up and make you your best financer to solve all the related problems. These solutions will stay with your forever and guide you throughout your path to prosperity.

10. Psych Yourself Rich: Get the Mindset and Discipline You Need to Build Your Financial Life by Farnoosh Torabi

Psych Yourself Rich- Get the Mindset and Discipline You Need to Build Your Financial Life by Farnoosh Torabi

This book comes to you by the well known personal finance star, Torabi. She talks about the importance of money and why it should be earned. The best part of Farnoosh’s work is that she extensively talks about the application of ways and methods she has discussed in order to gain wealth and success. It is more practical and handy.

According to the author, developing healthy habits, disciplined life, and a focused mindset are some of the most important essentials required to achieve your goals. A disciplined attitude can only help you grow as a financial well being. You should live in the present thinking about your future. Future planning is very important. You should work harder to earn big and thus, make every money of your count.

Also read: 3 Amazing Books to Read for a Successful Investing Mindset.

Closing Thoughts

The above-mentioned books will definitely help in building up your repository of financial knowledge. These books are not just meant for those who come from a finance background but for everyone who wants to succeed in their lives, those who want to earn and make it big.

5 Most common money myths you need to avoid cover-min

5 Most Common Money Myths You Need to Avoid

When you start earning, then a lot of people will tell you a ton of things to follow. Do you know why? Because when you are making more than people will be jealous of you and rather than being the motivation in your life, they will try to bring you down. But since they can’t hurt you in any way, they will create myths inside your head. These money myths are common and are happened to believe by a lot of people out there. Even the educated part of your society believes in it.

What are these money myths?

Well, these are common money myths which are needed to be avoided at any cost because they eat up your brain and does turn inside it. They are usually really harmless, but they come with a lot of misconception about earning. For instance, it does not harm you to believe in them, but them surely takes up a lot of time in your thoughts. For example, you might have heard your family members saying this and that when you are earning. And at some point in your life, you have believed in them. Well, these are just common, and they are random myths.

5 Common money myths to avoid right now

Here are the most common money myths you need to avoid right now.

Myth #1: You have to be rich to invest

Money myth - you have to be rich to invest

You want to make investment, but you have to be rich enough for them. You might laugh at this myth right now, but this is true, and a lot of people believes in it. And You don’t have to be costly for your investment. Investment can be done by a lot of people and especially if you want to have a secured future for yourself.

Finance is the part where you draw your own money, and there is always a risk to it. But you don’t have to be rich enough to do it. There are a number of investment options available which require very minimum monthly commitment like investing in ETFs, Mutual Funds, Index funds, direct equity investment etc. Moreover, Investment is the best way to grow your wealth. Believe it or not. We have seen people increase their wealth with the source of small systematic financing alone.

Myth #2: Savings cannot be done enough if you don’t earn enough

Money myth - savings cant be done if you do not earn enough

Savings are always a crucial part of your life. You don’t have to earn enough for that. If you want to save, then you can do it even if you are making 2k per month. It does not depend on what you make, but it solely depends on how much you are willing to think about your future.

Do you know that if you save at least 5% of your income in your bank, then it will amount to a lot more than what you can think of? Your savings are an integral part of your life, and you should never believe in this myth at all. If you save, then you are doing a favor for yourself and your family too.

If you are struggling with your budgeting, a simple rule that you can follow is 50/20/30 principle. According to 50/20/30 strategy, you should allocate 50% of your monthly income on ‘Needs’ (like rent, food etc), 20% of your monthly income on ‘Savings’ (like your retirement fund, investments etc) and the remaining 30% of your monthly income on your ‘Wants’ (like traveling, dining out etc). You can read more about 50/20/30 principle here.

Myth #3: You should leave your money management to hired experts

Money myth - you should leave your money management to hired experts

Don’t leave your money management on your financially educated partner or your family member or to a high priced financial advisor. If you are earning, then you should handle by on your own. It’s just a myth that you need to hire someone to manage your money. Always remember that whatever you are winning belongs to you and only you. And that’s why managing your own money efficiently is an important skill that everyone should learn.

For example, if you’re trading in equities or commodities from your earnings, always make sure to trade only that much money which does not affect your family even if you lose a bit. Similarly, if you’re actively involved in an online slot game, make sure to read everything possible about the game, have a strong strategy and a certain budget decided upon. This way you can manage your financials better without depending on anyone.

Myth #4: Investing in gold is always safe and better

Money myth invest in gold is safe and better

Always if you earn more, then you have to invest in gold. That is an absurd myth, and a lot of people believes and invests in gold. A large proportion of the Indian population considers Gold as one of the best options to invest in India. Here, gold is not only treated as a satisfactory long term wealth creator but also auspicious and a symbol of social status.

Anyways, Gold is a long term investment option and not suitable for earning short term gains. Moreover, the prices of Gold fluctuate in a cyclical manner. Therefore, one cannot expect Gold to perform well all the time. Overall, if you are seeking a regular source of income through your investments, Gold may never serve this purpose. However, if you want to hedge your existing investments in Equities and Bonds, you should consider investing in Gold.

Myth #5: Buying a home rather renting a place

Money myth buying a home rather than renting a place

You should hire a home, and you should not rent one is one of the most common myths which you will hear. A lot of people out there will explain this absurd point to you. Well, buying a home gives you better security, an area which is there for you and where you can count your name in.

But the decision of buying vs renting a home is not going to be the same for every individual. Whether you want to buy a house property or take it on rental, it totally depends on your financial situation. If buying accommodation suits my financial situation, it may not suit yours. Moreover, both the options are having their own perks and shortcomings.

Money myths are pervasive

Yes, myths regarding money are prevalent. Make sure that you are earning better and doing the best thing for yourself as well. If you are drawing and spending, then you are no useful than the rest of these people. You need to save your cash for future purpose, invest in options where you see that there is a built-in potential for you. Once you have found out your subject, it will be good enough for you.

And if you are afraid of spending cash a lot more to what you need, then you can opt-in for the credit card usage as well. Credit cards are right for you, and they help you to manage your budget and even stops you from overspending. Nonetheless, whatever be your situation, always try to avoid the money myths discussed in this article.

What is the TOWS Matrix? And how it is used?

What is the TOWS Matrix? And how it is used?

What is the TOWS Matrix? And how it is used?

Apple, Amazon, and Google — we all have heard the renowned names of these gigantic companies and are quite familiar with their products. They have been sustaining through the zig-zags of an economy and have successfully created a brand value since their establishment.  All three companies must have done something right which helped them to stay in the game for the long run, unlike other companies that couldn’t sustain or, have fizzled out. In order to find out the answers to such statements, analysts take the help of marketing strategies.  Today, we will discuss one such theory called TOWS Matrix to find out the awaited answers. Well, without further adieu, put on your reading glasses and jump in!

TOWS Matrix can be interpreted as a framework to assess, create, compare, and finally decide upon the business strategies. It is a modified version of a SWOT analysis and is an abbreviation that stands for Threats, Opportunities, Weaknesses, Strength. It was invented by an American business professor called Heinz Weirich in 1982 to examine businesses from a practical approach in reference to administration and marketing. The evaluation is done by amalgamating the external opportunities and threats with a company’s internal strengths and weaknesses.

What is the TOWS Matrix?

TOWS Matrix begins with an audit of external threats and opportunities. Such scrutiny gives a clear insight and helps to adopt long term strategies. Thereafter, the internal strengths and weaknesses of a company are taken into consideration. In the next stage, the internal analysis gets intertwined with external analysis to devise a strategy.

TOWS Analysis goes way beyond the conventional SWOT Analysis and aids organizations to remain one step ahead in the ever-changing competitive landscape. The TOWS Matrix can also help in the generation of amazing ideas in relation to fruitful marketing strategies, decision-making, protection against threats, opportunities, diminishing threats, overcoming weaknesses and awareness regarding potential shortcomings.

tows matrix analysis

Although internal and external factors are incompatible features, there still exists a balance between them. Strengths and Weaknesses fall under internal factors and consist of HR policies, manufacturing processes, goals and objectives, attributes of the products and services offered to the target market, core values, work culture, staff, and fundamentals of the company.

On the contrary, Opportunities, and Threats fall under external factors and consists of government policies, dynamic nature of the market, evolving tastes and preferences of the customers, competition in the market, fluctuation rates of the raw materials required for the production and etcetera.

Now, we will move on to the discussion where we will discuss the four potential strategies of the TOWS Matrix. The four TOWS strategies are :

  • Strength/Opportunity (SO)
  • Weakness/Opportunity (WO)
  • Strength/Threat (ST)
  • Weakness/Threat (WT)

Strengths and Opportunities (SO) / Maxi-Maxi Strategy

The aim of a Maxi-Maxi Strategy is to utilize internal strengths to make optimum use of the external opportunities available to the company. In other words, the company has to utilize the strengths by using its resources to cash in on potential opportunities.

For example, if a  company has reasonably established a brand name in the market and has won the hearts of the consumers, there lies a golden opportunity to explore the new market locations or introducing a new line of products and services for the same target market. Such a step can turn out to be the best for the upliftment of the firm.

TOWS Matrix internal external

(Image Credits: B2U)

Strengths and Threats (ST) / Maxi-Mini Strategy

The aim of a Maxi-Mini strategy is to maximize the strengths of a company while minimizing the threats with the support of these strengths. Thus, a company should take advantage of the internal strengths to avoid massive external threats. This strategy indicates that the management of the organization can employ all the internal strengths to counter any of the possible threats that can come in the way of the business as obstacles.

Example: In the market, there is always a cut-throat competition amongst peers or, between new and old entrants. In such a scenario, to beat the competition, the lagging company needs to take advantage of the internal strengths such as quality, manufacturing techniques, legacy and customer service.

Weakness and Opportunities (WO) / Mini-Maxi Strategy

The Mini-Maxi strategy attempts to minimize the weaknesses and to maximize the opportunities. The aim is to revamp internal weaknesses by making use of external opportunities. The management of the company will detect various alternatives to look past the weaknesses and take control of the opportunities that come up in the course. It is always a wise decision to decline or correct the weaknesses and untap the opportunities.

Example: If the company doesn’t possess any expertise in any of the business domains which is necessary for the growth and is gifted an opportunity to ally with another company that has the needed expertise, it works as a fairly convenient situation for both the companies.

Weakness and Threats (WT) / Mini-Mini Strategy

The aim of the Mini-Mini strategy is to minimize weaknesses and minimize threats. This is definitely the most defensive spot in the TOWS Matrix. It is mostly utilized when a company is in a  deplorable position. In such a scenario, the company operates in an aggressive environment and has little or no development opportunities. The mini-mini strategy is nothing but a pessimistic style of liquidation of a company.

EXAMPLE: A company has lost its shine and glory and has lost the faith of the stakeholders. Thus, there exists a threat of losing out on funding and investment by investors. In this case. it might close down poor-selling products, cut down underperforming employees and build a hostile technique of selling. If optimistic, the company might look for merging with another suitable company to leverage its expertise and resources for hanging on to funding.

TOWS Matrix – Apple INC

apple steve jobs

Let us now apply these four strategies of TOWS Analysis to a famous company called Apple.

Apple Inc. is an American multinational organization specialized in technology and has its headquarters in Cupertino, California. Apple fabricates, builds and sells computer software, electronic products, and online services. The tech giant was established by Steve Jobs,  Ronald Wayne, and Steve Wozniak in April 1976. It is considered as the world’s largest technology company by means of revenue and is also one of the world’s most valuable companies.

According to statistics, it is the world’s third-largest mobile phone manufacturer after Samsung and Huawei. Apple’s renowned products consist of the iPad tablet computers, HomePod smart speaker, iPod portable media player, iPhone smartphone, Mac personal computer, Apple Watch smartwatch, AirPods wireless earbuds, and Apple TV digital media player. The online services provided by Apple are iTunes Store, Mac App Store, Apple TV+, iCloud, Apple Music, the iOS App Store, and  Apple TV+. In Fiscal YEAR 2018, the worldwide revenue of Apple totaled to $265 billion.

The strengths, weaknesses, opportunities, and threats of Apple are mentioned below. After glancing through them, we will begin performing our TOWS Matrix according to the rule.

— Strengths

  1. Apple is known as a Market leader and thus, maintains a high standard across several products and services. It is the most trusted brand in the entire marketplace.
  2. It has a strong brand image and thus helps the audience to differentiate Apple from other competitors and positively influences the purchasing decisions.
  3. It possesses extensive financial strength and thus has higher profitability and liquidity.
  4. Apple has also a highly innovative and highly sophisticated supply chain which helps in maintaining efficiency.
  5. It also has High-profit margins because of the consistent sales of its popular products.
  6. The premium quality of its products allows Apple to enjoy a large and loyal customer base.

— Weakness

  1. Apple Products are not priced by keeping the competition in mind and can be afforded by a certain section or class.
  2. There is an availability of a narrow product range compared to its competitors.
  3. The products and services are only compatible with Apple products and are incompatible with the products of other brands.

— Opportunities

  1. There is a constant rise in demand and craze for mobile devices irrespective of the quoted price.

— Threats

  1. In spite of being market leaders, there has been an emergence of competitors.
  2. The cost of manufacturing has been constantly on the rise.
  3. There has been also a decline in the market share of Apple due to the falling demand of Laptops and Personal Computers.

— Strengths and Opportunities (SO) of Apple:

Since there has been an increase in demand for mobile devices, the company should increase its focus by concentrating on manufacturing and marketing to generate profit. Apple should also leverage its brand value and financial strength to enter into new products and consequently increase their sales and profit. Such a step will aid Apple benefit from its existing customer base and customer loyalty. Further, if it partners with other brands to mass-produce compatible products and create mutually advantageous relationships, it will highly assist Apple in hack into the customer base of other brands.

— Strengths and Threats (ST) of Apple:

Apple should build a diversified range of products to fabricate its customer base and diminish the pressure of competitiveness. Another most important point is to consider the cultural variance to retain the competitive advantage created by  Steve Jobs.

— Weakness and Opportunities (WO) of Apple

Since Apple has only high-end products, it should release a cluster of products at an affordable price to make it feasible for middle-class consumers. Creating a larger product sets and thereby, entering into a new product arena will also help Apple to serve new customer segments.

— Weaknesses and Threats (WT) of Apple

Releasing a range of competitively priced products to attract middle-class customers can change the scenario altogether to reduce the pressure from competitors. It should also widen the product sets and try to cash in on the capability of the existing supply chain to decrease the manufacturing costs.

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Advantages & Disadvantages of TOWS Analysis

We will now elaborate on the major pros and cons of TOWS Analysis.

Advantages of TOWS Matrix

  1. TOWS Analysis helps to stumble upon strategic ideas by interconnecting the internal and external factors for the organizations.
  2. It is cost-effective in nature.
  3. It’s user-friendly and can be performed by any layman after learning a few parameters.
  4. TOWS Analysis can be applied to any company irrespective of the industries and economies.
  5. It helps organizations to upgrade their strategies with changing dynamics.

Disadvantages of TOWS Matrix

  1. TOWS analysis becomes tough to handle if we are overloaded with information.
  2. On many occasions, TWOS Matrix doesn’t take the ever-changing competitive environment into consideration and can affect the main agenda of finding out strategies for business in attaining elevated profits, higher sales, creation of brand value and etcetera.

Summary

TOWS Matrix is a framework to assess, create, compare, and finally decide upon the business strategies. It is a modified version of a SWOT analysis. The TOWS Matrix helps in the generation of amazing ideas in relation to fruitful marketing strategies, decision-making, protection against threats, opportunities, diminishing threats, overcoming weaknesses and awareness regarding potential shortcomings.

The four TOWS strategies are Strength/Opportunity (SO), Weakness/Opportunity (WO), Strength/Threat (ST), and Weakness/Threat (WT).

TOWS Analysis can be applied to any company irrespective of the industries and economies. It is user-friendly and can be performed by any layman after learning a few parameters. However, the TOWS analysis becomes tough to handle if we are overloaded with information.