নিজের যুক্তি লিখে ফেলুন Write your thesis down

Everything so far comes together here. A thesis is your own reasoning, written down, for why your money belongs in this company. It need not run past one page, and without it the rest of the analysis is only collecting facts.

Why written? Because reasoning held in the head moves with the price. When the price rises the argument feels strong and when it falls it feels weak, and both are wrong, because the price was never part of the argument.

The five parts

The order is not arbitrary. The business first, because without understanding it everything else is a guess. The reason next, because that is your claim. Evidence next, because a claim needs numbers behind it. Risks fourth, because every claim has an opposite side. And the limit last, because that is what gives the decision a shape.

The business: three sentences

What it sells, who buys it, where the money comes from. In the five questions before buying this was question two, and here it is the foundation.

A test: if the sentences contain words like "solution", "platform" or "ecosystem" and it is not clear what is sold, then you have not understood the business, you have memorised the company's own language.

The reason: one sentence

Why will this company be worth more in a few years than it is today? The answer has to fit in one sentence, and that sentence cannot contain a price.

A good reason looks like: "The sector is growing and this company's costs are below its competitors', so as the market grows its profit grows disproportionately." A bad one looks like: "The price has fallen a lot and it is cheap now."

Evidence: three numbers

If your reason is true it should be visible in numbers. A cost advantage means a higher margin. A claim about taking share means revenue growing faster than the sector. A claim about financial strength means low debt and good interest cover.

Three numbers are enough, and all three must connect directly to your reason. A number unconnected to your claim is decoration.

Risks: what would prove me wrong

This part is where the thesis earns its value, and it is the part most often left out. Write two or three specific, observable events that would make your reason untrue.

Specific means measurable. "If competition increases" is not specific. "If the gross margin stays below 25% for two consecutive years" is, because you can open an annual report and check it.

The limit: how much money

The maximum you will hold in this company, as a number. Under the rules of diversification it is a fixed percentage of your total investments, decided before you buy.

This field has an extra benefit: the more confident you are, the greater the temptation to raise the limit, and that is precisely the moment to be most careful. The largest losses happen in the investments people were most certain about.

When to read the thesis

Three occasions. Every year, when the annual report arrives. Whenever there is significant news. And whenever you feel like selling, especially then.

The last is the most important. The price is down 30% and your hand is shaking: this is the moment the thesis was written for. Open it, read it, and ask one question: has any of the risks I wrote down actually happened? If not, the falling price has nothing to do with your decision.