How to write an investment brief

Learn how to write an investment brief like a professional

The best investors are fantastic writers. This is a clear example of their thought process. And now you too can simplify your investment process with a one-this is the applied section. Here is how you will put ideas into action.

How to write an investment brief

Ok so you found a new idea after doing hours of research, what’s next? Well the tough part is bringing your ideas to life. I mean, outperforming the market. What’s the point of investing if we can’t beat the market?

Alright, so here’s the challenge. Write your idea, from beginning to end, in 500 words or less.

That’s all it takes to begin. In this section, we are bringing all of our learnings together: how to find ideas → how to write ideas → how to invest in ideas. The goal is to make a concise effort to simplify investment ideas to the absolute core.

You see, investors can hide behind opinions or news headlines. It’s easy to fool yourself when a company hits a 52-week low. Or if a new product launches. Or the stock beats earning expectations.

Either way, you are the easiest person to fool when reading these headlines. Myself included.

So here’s what we need to do. First, take your list of research ideas and highlight the best one. I prefer to keep a separate brief for every investment idea. I’ll write down notes like where I found an idea. Was it the news or Twitter? How much research did I put in? Are there any relative links like research reports or investor presentations? If so, I keep everything on one page.

Overtime I will have a track record of different sourcing channels. Maybe there will be 1-2 where I will go back to find better ideas. The Value Investors Club is one example of this.

Remember, lack of research can cost you millions of dollars. It is the first and most important step.

Now is writing time. To be honest, this will take a few iterations. There are no shortcuts to critical thinking. This process is the same if you are investing $10,000 or $10,000,000. Capital is your leverage multiplier.

To begin, I start writing a bad one-pager. Simple notes to cover the basics such as what the company, how it makes money and what one catalyst may look like. Right away I’ll find the gaps in my thinking.

“Oh, Microsoft has more than one revenue stream? They don’t only sell Office products?”

This is your first feedback loop. Over time you’ll begin adding or subtracting ideas that are necessary. Anything that will increase your level of certainty. This is also your chance to highlight material that interests you. Remember, think about the read. In most cases, it’ll be you.

I use my briefs as reference points. Everytime I make an update or something big changes, my original investment thesis gets revised. This is my digital journal.

This is your chance to be open with yourself. Ask, “Why does a specific word matter? Will it help improve your returns? Does it increase your confidence levels?” If you’re not comfortable with each answer, go back and rewrite the brief. 

Here is where your thesis goes from qualitative to quantitative. You move away from the investment summary and go into the valuation and catalysts. I will explain both below.

Valuations are tricky but give your investment scope. You see, buying a stock at a low price is not enough to generate a return. Especially an outsized return. You need to break down the entry price. Yes, every investment return is based on the entry price.

Now this is when it gets interesting. The catalyst is everything for a trade. Short term or long term.

Your goal is outperformance. So you need to think about catalysts that are misunderstood. For example, does the company have a new product being released? Are the analysts missing something in the upcoming earnings announcement? What about legal battles and lawsuits? Is a key executive or customer leaving? All of these announcements will have an impact on the future price of the company. Especially its valuations.

So as changes take place, your thesis will change as well.

But to outperform, you need to hunt for these changes. Investors make serious money based on the rate of change. Sure compounding works over the long run. But it’s much better to buy something worth $25 for $10 and then watch it compound to $100 over twenty years. Again, entry point matters.

Catalysts can also be negative. Every reward comes with a risk. This investment brief is designed to highlight these gaps. To identify the risk and rewards with investing. To find the known and unknown unknowns.

As the company evolves overtime, you can now track these changes. First the summary, what are the essential components of the business? Has the business model switched from product to service-based revenue? What is the company worth today? Will it be worth more or less in the future?

And last, what is a possible catalyst that will work in my favor? What are the upsides and downsides? How can I price them into my purchase price? Is my principal protected? Am I getting paid to take this much risk?

All of these questions will be answered in every brief. And every iteration will make them better overtime.

Crafting a Compelling Investment Brief: A Step-by-Step Guide

An investment brief is a concise document that outlines key aspects of a potential investment, including its qualitative and quantitative characteristics, along with the risks and potential catalysts. A well-crafted brief can be an indispensable tool for any investor. Here’s a step-by-step guide on how to write a compelling investment brief.

Step 1: Research the Investment

Start by thoroughly researching the investment opportunity. Review company financials, industry reports, news articles, and any other relevant information. Pay special attention to balance sheets, income statements, and cash flow statements to understand the company's financial health. In addition, try to gain a deeper understanding of the industry and the company's competitors.

Step 2: Write the Investment Summary

This section should provide a concise overview of the investment opportunity. It should include the company's name, industry, and a brief description of its business operations. Also, outline the key reasons why you believe this is an attractive investment.

Step 3: Identify Key Qualitative Factors

These include factors such as the company's management team, brand strength, competitive advantage, and market potential. Be sure to highlight anything that makes the company unique or positions it for future growth. However, always be objective in your assessment.

Step 4: Analyze Quantitative Factors

This involves a deep dive into the company's financials. Include relevant ratios such as P/E ratio, debt-to-equity ratio, return on equity, and others. Also, analyze revenue and earnings growth, profit margins, and cash flow stability. These metrics can provide valuable insights into the company's financial performance and stability.

Step 5: Identify Potential Risks

No investment is without risks. Identifying and understanding these risks are crucial. This could include things like market volatility, regulatory changes, or competitive threats. Also consider company-specific risks such as high debt levels or over-reliance on a single product.

Step 6: Highlight Possible Catalysts

Catalysts are events or conditions that could significantly impact the investment's performance. This could include new product launches, potential mergers or acquisitions, regulatory changes, or significant shifts in market conditions. Identifying potential catalysts can help you anticipate future changes in the investment's value.

Step 7: Conclusion

This should summarize your findings and provide your overall assessment of the investment opportunity. Be sure to reiterate the key points from your analysis and explain why you believe the investment is (or isn’t) a good opportunity.

The process of writing an investment brief is as much a science as it is an art. It involves both analytical skills and a deep understanding of the business and industry. Remember, the goal is to present a balanced and informed view of the investment opportunity, so always strive for objectivity and thoroughness in your analysis. By mastering this process, you'll be well on your way to making more informed and confident investment decisions.

Back to blog