Investment Thesis

An investment thesis aims to take an abstract idea and turn into a functional investment strategy. An investment thesis helps investors evaluate investment ideas, ideally guiding them in selecting the best ideas that can help meet their investment objectives.

As with any thesis, when new investment ideas are surfaced, the research and methodologies underlying the idea must be taken from abstract concept to formal idea. In the world of investments, the thesis serves as a game plan to help readers understand the big picture and nuances attached to an investment strategy.

Most investment theses are in written form, and can be used to look back and analyze why a particular decision was made in the first place - and if it was the right one.

Let's say an investor purchases a stock based on the investment thesis that the stock is undervalued. The thesis further states that the investor plans to hold the stock for several years, during which he expects its price to rise and reflect its true worth. At that point, he intends to sell at a profit. When the stock market crashes a year in, and everyone is selling, the investor reminds himself of his investment thesis. He decides that he should not sell, but rather continue to rely on his original analysis and hold the stock.

Just as markets ever evolve, so too are the ideas and strategies investment professional believe are best suited to take advantage of growth and value creation opportunities. Although generally considered formal in nature, no universal standards exist for what constitutes an actual investment thesis. Some investment opportunities may present themselves with little time to take advantage, as such, professionals must act quick and perhaps are unable to document a lengthy investment thesis. For bigger trends, such as global macro perspectives, an investment thesis may be well documented. Possibly even including a fair amount of promotion and PR behind it.

In the last few decades, portfolio management has become a more science-based discipline, not unlike engineering and medicine. As in those fields, breakthroughs in basic theory, technology and market structures continuously translate into improvements in products and professional practices. In turn, investment and business professionals thesis have been greatly strengthened with qualitative and quantitative methods.