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. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  2. Prospect Theory

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

    A field of finance that proposes psychology-based theories to ...
  4. Metrics

    Parameters or measures of quantitative assessment used for measurement, ...
  5. Exit Strategy

    1. The method by which a venture capitalist or business owner ...
  6. Endowment Effect

    The endowment effect describes a circumstance in which an individual ...
RELATED FAQS
  1. No results found.
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

    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?
  7. 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.
  8. 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.
  9. Investing Basics

    R-Squared

    Learn more about this statistical measurement used to represent movement between a security and its benchmark.
  10. Insurance

    The Government And Risk: A Love-Hate Relationship

    Though the U.S. government can help its citizens by subsidizing risky loans, the costs always come back to the taxpayers.

You May Also Like

Hot Definitions
  1. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  2. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  3. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  4. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  5. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  6. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
Trading Center