For education and information only. This page is not personal financial, investment, tax or legal advice, and is not a recommendation or invitation to buy, sell, transfer or hold an investment. Investing involves risk and you can lose money, including the amount invested.
Research cannot remove uncertainty. It can make the uncertainty visible before capital is committed. A good outcome is sometimes “I do not understand this well enough yet.”
1. Start with the business, not the chart
Describe what the company sells, who pays, why customers stay and what could make that relationship less durable. If the business cannot be explained plainly, the ticker is not ready for a valuation discussion.
2. Read primary disclosures
Start with the investor-relations site and relevant filings. The SEC explains how 10-K and 10-Q reports describe a company’s business, risks and financial results. Read the business description, risk factors, MD&A, liquidity section and financial-statement notes.
3. Test the numbers against the story
- Revenue quality: recurring or one-off, concentrated or diversified.
- Margins and cash conversion: does cash support reported profits?
- Balance sheet: debt maturities, covenants, liquidity and financing needs.
- Share count: dilution from compensation, warrants, convertibles or future capital raises.
- Valuation: what assumptions are embedded in the price, and what could make them wrong?
4. Write the bear case
Name the strongest alternative explanation. Then write the evidence that would invalidate the view and the next filing or milestone that can test it. Do not use a falling price as the only decision rule.
5. Decide, defer or pass
A position size is a risk decision, not a confidence score. Correlation with existing holdings, liquidity needs and the ability to withstand a loss matter as much as the apparent upside.
Related reading
For education and information only. This page is not personal financial, investment, tax or legal advice, and is not a recommendation or invitation to buy, sell, transfer or hold an investment. Investing involves risk and you can lose money, including the amount invested.
A written thesis is not a prediction. It is a decision record: what you believe, why you believe it, what evidence supports it and what would change your mind.
The one-page template
- Business in one sentence: what the company sells, who pays and why the relationship may endure.
- What must be true: name the two or three assumptions that drive the outcome.
- Evidence: link the filing, investor presentation or other primary source, date it and record the next check.
- Financial quality: revenue, margins, cash conversion, debt, liquidity and customer concentration over more than one period.
- Valuation: show assumptions and a range. A valuation is an interpretation, not a fact.
- Risks and invalidation: write the strongest bear case and the evidence that would break the view.
- Dilution: check basic and diluted shares, options, warrants, convertibles and financing capacity.
- Position decision: set an initial size, a maximum and conditions for adding, trimming or doing nothing.
Use primary sources first
For US companies, the SEC’s 10-K and 10-Q guidance is a useful starting point. Read the business description, risk factors, liquidity discussion, financial statements and notes before adopting a narrative from elsewhere.
The rule that matters most
Write the invalidation test before any action. A share-price fall alone is not proof that a thesis is broken. A failed milestone, deterioration in customer retention, an unexpected capital raise or a weakening competitive position may be more informative. The point is to prevent a later outcome from rewriting the original reason for owning something.
Related reading
