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What Is an Investment Thesis?

K.C. Bruning
K.C. Bruning

An investment thesis outlines core beliefs and strategies as they relate to the investment practices of a particular party. This includes information about why and when the investor would be likely to buy or sell. It is a method of describing motivation, plan of attack, and how the party's investment philosophy affects the decision making process. In essence, it is a document that describes investment goals and the steps that will be taken to achieve them.

The investment thesis is a typical first step in creating a healthy portfolio. It is crucial that strategy be carefully considered at this stage, as it will form the foundation for future activity. Failing to consider key elements of investment options or poorly planning actions in this thesis can set up an investment for weak performance.

Man climbing a rope
Man climbing a rope

In addition to establishing an overall plan for investing, an investment thesis can also go into detail as to how specific kinds of stocks and other investments will be approached. This includes things such as what kinds of stocks to buy, how long to hold certain kinds of shares, and how to make a valuation. A typical investment thesis will outline beliefs about individual stocks as well. For example, a thesis may claim that the price for a certain stock may be too high or low.

By using an investment thesis as a guideline for making decisions about investing, an investor is not only following a certain philosophy, but also acting with consistency. This can improve the chances of performing well in the market, as the investor will not be as likely to make isolated, rash, or otherwise ill-conceived investment decisions. Instead, it institutes a system to be followed for current and future decisions.

The investment thesis is also a way for investors to stay true to their own plan. This can help to lessen the influence of external factors such as other investors and the performance of the market overall. With the long-term plan outlined by the thesis, the investor can stand firm and make decisions based on individual analysis.

An investor can refer back to an investment thesis in order to determine whether or not investment goals have been met. If they have not, the document can serve as a resource for analyzing and adjusting activity in the future. It can help an investor to decide whether to change investment strategy or to stay the course with the current plan.

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