An investing thesis is an important part of my investing approach, and I include one with all of my dividend stock analysis reports. An investing thesis is a qualitative (and partially quantitative) review of the company that contains the reasons you wish to own it. You can write it down to help you better understand your reasons for investing in a given company, and it can also be saved and reviewed at a later time.
Outline of an Investing Thesis
I don’t use any specific outline, but there are a few things that an investing thesis should include.
-What makes the company worthwhile now?
-What will make the company worthwhile in the future?
-What are the strengths and weaknesses of this company, and how does it compare to competitors?
-What macroeconomic factors are facing this company now and in the long-term?
-What is an appropriate valuation for this company’s stock to have?
-What is the dividend situation?
Buying for the right reasons
The most immediate use of an investing thesis is to realize whether or not you have good reasons for purchasing stock of a company. If you begin to write your thesis only to find that you have nothing to write, or that all you plan to write isn’t very convincing, then you’ve perhaps saved yourself from an investing blunder. If, alternatively, you’ve given the company a lot of thought, and you can fully articulate convincing reasons to own the stock, then you’re on a path that has a higher chance of success.
Logic over Emotion
An investing thesis is also a tool to use to keep your logical side from winning over your emotional side when it comes to buying and selling stock. One reason I started this website is so that I’d have a reason to make a written record of most stocks that I buy. It helps ensure that the written reports are of high quality, because hundreds of people will read them. You don’t have to take this drastic of an approach, but I think that writing down your reason for owning a stock and saving it is a great way to keep yourself on track.
In life, things often go in a way we didn’t expect. That’s just how life works, and this includes our portfolio performance. Sometimes you’ll buy a company for all the right reasons, and yet over a given time period the stock price may decrease. Unwise or inexperienced investors become impatient and unsatisfied with the progress of their investment, and may consider selling and looking for greener pastures. This is the time when having your original written statement is useful. If you can see your logical reasons for buying the stock, you can check to see if all or most of those reasons are still in place. If they are still in place, then your emotions are likely getting the better of you because you’re worrying about the stock price even though the company still has the qualities you initially invested in, and this can remind you of your logic. If the qualities are not still in place, or if you re-evaluate your buying reasons as illogical, then selling might be a good idea, because the company is no longer in line with your original logic, or your original logic was flawed. If a company has changed something dramatic about their operations, and you no longer agree with it or understand it, then it might be a legitimate selling point.
So, consider writing down an investment thesis when you invest in dividend stocks. It’ll help you determine whether you should really invest in the company, and can also be revisited later in moments of doubt to see if your reasons for investing are still intact within the company.