An investment thesis template is a short, fixed set of questions you answer before you buy: what the business does, why the price is wrong, what must be true, what you will pay, what would make you sell, and when you will check. Written down, it fits on half a page and turns “I like this stock” into a claim you can test. This guide gives the template, a worked example on an invented company, and a way to review it that does not quietly move the goalposts.
A thesis is the reason you own a share, stated so that it could turn out to be wrong. “Great company” is not a thesis; nothing could ever disprove it. “Replacement parts will keep margins above 14% while new-equipment sales are weak” is one: in a year you will know.
Writing it down matters because memory edits itself. Six months after a purchase, a share that rose will feel like it was bought for the reason it rose, and a share that fell will feel like it was always a long-term hold. A dated sentence in your own words is the only record that cannot drift, and it is what lets you tell a broken thesis from a price that is merely lower than you hoped.
Answer these in order. The first two set up the idea, the middle two make it measurable, and the last two decide what you will do later — which is the part most people skip.
| Part | The question | What a good answer looks like |
|---|---|---|
| 1. The business | What does the company sell, to whom, and how does it make money? | Two or three plain sentences a friend outside finance would follow. If you need jargon, you do not understand it yet. |
| 2. The mispricing | Why is the price wrong, and why does the market see it differently? | A specific disagreement — “the market is extrapolating one bad year” — not “it is cheap”. |
| 3. What must be true | Which two or three facts have to hold for you to be right? | Things you can check in a report: a margin, a growth rate, a share of revenue, a debt level. |
| 4. Your price | What is it worth, and what will you pay? | A value estimate, a buy-below price and the margin of safety between them, written before you look at the chart again. |
| 5. What would make you sell | What evidence would prove you wrong — or the job done? | Named in advance: a fact that breaks a point in part 3, or a price that leaves no margin. |
| 6. Review date | When will you re-read this, and against what? | A date tied to evidence — after the next two quarterly reports, not “some time next year”. |
Then compress the whole thing into one sentence at the top. If parts 2 and 3 will not fit into one sentence, the idea is probably two ideas, or none.
Part 4 is where most theses get vague. Write a number for what the business is worth — an intrinsic value estimate from a discounted cash flow, or what the market usually pays for earnings like these — and a price below it that leaves room for being wrong. That gap is your margin of safety: (estimated value − price) ÷ estimated value.
The company below is invented, and so are the figures; the point is the shape. Call it Acme Pumps, a maker of industrial pumps whose shares trade at $40.
And the one sentence at the top: “Acme’s parts business keeps margins above 14% through a weak order cycle, and at $40 the market is paying for the cycle, not the installed base.”
Notice what the example does not contain: a target date for the price, a prediction of next quarter’s earnings, or the word “should” attached to the share price. A thesis is about the business; the price is only what you pay for it.
Two things should send you back to a thesis: the review date arriving, and the company doing something — results, a filing, a press release, an insider selling stock. The second is often the more urgent, because a thesis is usually broken by an event, not by the calendar.
Read it in this order:
The test of an honest review is whether “exit” was ever a real option. If every review ends in reaffirm, either you are very good or part 5 was never specific enough to trigger.
The investment journal in Lemma Analysis is built around this template. Each entry has a Core thesis — one sentence of up to 160 characters, “one sentence you will be held accountable to” — plus free Notes for the other five parts and a Review date with 3m, 6m and 1y shortcuts.
You can write a thesis from the Journal screen, while adding a company to a watchlist, or from the company’s own page. The journal is on the free plan, with a limit on the number of entries; editing an existing thesis never counts against it. Step-by-step instructions are in how to use the investment journal, and for part 4 the intrinsic value calculator page explains the four valuation models behind a value estimate.
Educational only. Not investment advice.
Lemma Analysis gives independent investors both lenses in one terminal — a stock screener and an intrinsic value tool for the fundamentals, alongside price history and charts for timing.