What is an 'Investment Thesis'
An investment thesis is 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.
BREAKING DOWN '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.