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. Cape Cod Method

    A method used to calculate loss reserves that uses weights proportional ...
RELATED FAQS
  1. What are the benefits of using ceteris paribus assumptions in economics?

    Most, though not all, economists rely on ceteris paribus conditions to build and test economic models. The reason they do ... Read Full Answer >>
  2. What is the difference between the rule of 70 and the rule of 72?

    The rule of 70 and the rule of 72 give rough estimates of the number of years it would take for a certain variable to double. ... Read Full Answer >>
  3. What is the risk return tradeoff for bonds?

    Macaulay duration and modified duration are mainly used to calculate the durations of bonds. The Macaulay duration calculates ... Read Full Answer >>
  4. What is the formula for calculating the capital to risk weight assets ratio for a ...

    Use the Macaulay duration to calculate the duration of a zero-coupon bond. The resulting Macaulay duration of a zero-coupon ... Read Full Answer >>
  5. How do I calculate how long it takes an investment to double (AKA 'The Rule of 72') ...

    You can calculate the approximate amount of years it would take an investment to double, given the annual expected rate of ... Read Full Answer >>
  6. How valuable is the forward rate as an overall economic indicator?

    Any given forward rate is theoretically equal to its corresponding spot rate plus future expectations. Many investors and ... Read Full Answer >>
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. Fundamental Analysis

    Calculating the Herfindahl-Hirschman Index (HHI)

    The Herfindhal-Hirschman Index, (HHI) is a measure of market concentration and competition among market participants.
  7. Investing

    How To Implement A Smart Beta Investing Strategy

    Smart beta investing is the notion of re-writing investment rules to improve investment outcomes by targeting exposures to intuitive ideas or factors.
  8. Investing

    Market Crisis: Does Diversification Still Work?

    If you still aren’t sold on the benefits of international diversification, you may object that: Diversification didn’t work during the last market crisis.
  9. Economics

    Explaining the Value Chain

    A model of how businesses receive raw materials as input, add value to the raw materials, and sell finished products to customers.
  10. Fundamental Analysis

    Explaining Variance

    Variance is a measurement of the spread between numbers in a data set.

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center