Investment Thesis

AAA

DEFINITION of 'Investment Thesis'

The beliefs that investors decide to use when determining what investments to purchase or sell, when to take an action and why. An investment thesis helps investors establish goals for their investments, and measures whether they have been achieved, either in written form or simply as an idea. A sound investment thesis can be a foundation for a profitable portfolio. On the other hand, an incorrect investment thesis can result in sub-par returns or losses.

INVESTOPEDIA EXPLAINS 'Investment Thesis'

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.

RELATED TERMS
  1. Prospect Theory

    A theory that people value gains and losses differently and, ...
  2. Behavioral Finance

    A field of finance that proposes psychology-based theories to ...
  3. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  4. Exit Strategy

    1. The method by which a venture capitalist or business owner ...
  5. Metrics

    Parameters or measures of quantitative assessment used for measurement, ...
  6. Sharpe Ratio

    A ratio developed by Nobel laureate William F. Sharpe to measure ...
Related Articles
  1. Active Trading

    Would You Profit As A Day Trader?

    Market timing is surrounded by controversy, but does it work?
  2. Mutual Funds & ETFs

    Invest With A Thesis

    Writing down a thesis for every investment may seem almost too simple to be effective, but lessons from behavioral finance tell us that bias and fear of loss often cloud our views, even for the ...
  3. Active Trading Fundamentals

    An Introduction To Behavioral Finance

    Curious about how emotions and biases affect the market? Find some useful insight here.
  4. Investing

    Tips For Investors In Volatile Markets

    Find out what to look out for when trading during market instability.
  5. Trading Systems & Software

    Mechanical Investing Not A Golden Key

    Direct paths to wealth are getting narrower, fewer and may be locked up tight.
  6. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  7. Fundamental Analysis

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.
  8. Economics

    How A Limited Government Affects A Country's Finances

    Countries with limited governments have fewer laws about what individuals and businesses can and can’t do. What's the net result?
  9. Investing Basics

    How Does Goodwill Affect Financial Statements?

    Goodwill is a bit of a paradox--intangible, yet it is recorded as an asset on the purchasing company's balance sheet.
  10. Investing Basics

    Using Normal Distribution Formula To Optimize Your Portfolio

    Normal or bell curve distribution can be used in portfolio theory to help portfolio managers maximize return and minimize risk.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center