2.14. Building a Research Thesis
Lesson objective
Turn data into a testable hypothesis.
A research thesis explains how the company makes money, why it may grow, which advantages it possesses, which risks it faces, and what valuation is being paid. It should be concise and specific.
Include indicators that would confirm or contradict the thesis, such as growth, margin, retention, debt, free cash flow, or market share. This keeps monitoring from depending only on price.
A thesis should change when the facts change, not merely because the market moves.
A thesis is a testable explanation
| Part | Example structure | |---|---| | Business | “The company can keep gaining share because…” | | Financial evidence | “This should appear in growth and margins…” | | Valuation | “At this price, the market appears to assume…” | | Risk | “The thesis weakens if…” |
Base, bull, bear
Base: growth normalizes and margins hold. Bull: new products accelerate growth with operating leverage. Bear: competition slows growth while costs stay high.
Include at least one condition that would make you revisit the thesis. If no evidence can prove you wrong, you have a belief rather than a testable thesis.
What you should remember
- Write the main reason, key risks, and invalidation criteria.
- Separate the business thesis from the purchase price.
Practice
Write a thesis of no more than 150 words and three conditions that would invalidate it.