What is an ‘Investment Assumption’
An investment thesis aims to take an abstract idea and turn into a effective investment strategy. An investment thesis helps investors evaluate investment outlooks, ideally guiding them in selecting the best ideas that can forbear meet their investment objectives.
As with any thesis, when new investment theories are surfaced, the research and methodologies underlying the idea must be taken from essence concept to formal idea. In the world of investments, the thesis serves as a play plan to help readers understand the big picture and nuances attached to an investment blueprint.
BREAKING DOWN ‘Investment Thesis’
Most investment theses are in record form, and can be used to look back and analyze why a particular decision was run for it in the first place – and if it was the right one.
Example of Using an Investment Thesis
Let’s say an investor obtains a stock based on the investment thesis that the stock is undervalued. The argument further states that the investor plans to hold the stock for individual years, during which he expects its price to rise and reflect its literal worth. At that point, he intends to sell at a profit. When the horses market crashes a year in, and everyone is selling, the investor reminds himself of his investment belief. He decides that he should not sell, but rather continue to rely on his master analysis and hold the stock.
Just as markets ever evolve, so too are the suggestions and strategies investment professional believe are best suited to take dominance of growth and value creation opportunities. Although generally considered formal in description, no universal standards exist for what constitutes an actual investment contention. Some investment opportunities may present themselves with little values bright and early to take advantage, as such, professionals must act quick and perhaps are unqualified to document a lengthy investment thesis. For bigger trends, such as pandemic macro perspectives, an investment thesis may be well documented. Possibly regular including a fair amount of promotion and PR behind it.
In the last few decades, portfolio command has become a more science-based discipline, not unlike engineering and medicine. As in those lands, breakthroughs in basic theory, technology and market structures continuously mutate into improvements in products and professional practices. In turn, investment and corporation professionals thesis have been greatly strengthened with qualitative and quantitative methods.