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Fool Investment Thesis

This checklist provides a comprehensive framework for building an investment thesis. It encourages thorough research and analysis of various aspects of a company, from its core business and financials to its future potential and risks. By following these steps, investors can make more informed decisions and develop a well-rounded understanding of their potential investments.

Understand the company and the problem it solves​

  • What does the company sell or do?
  • What problem is the company solving?
  • Who are the company's customers?
  • How does the company make money?

Identify the main revenue sources​

  • List all revenue streams
  • Determine the proportion of total revenue from each source
  • Assess the stability and growth potential of each revenue stream

Assess the financial health and sustainability of the business​

  • Analyze financial statements (income statement, balance sheet, cash flow statement)
  • Evaluate profitability, liquidity, and solvency ratios
  • Consider any financial risks or red flags

Focus on signals rather than market volatility noise​

  • Identify key performance indicators (KPIs) relevant to the business
  • Monitor long-term trends and fundamental metrics
  • Avoid making decisions based on short-term market fluctuations

Evaluate competitive advantages​

  • Analyze the competition within the industry
  • Assess the stickiness of the product or service
  • Determine if the business has network effects
  • Identify any unique selling propositions or barriers to entry

Examine management and company culture​

  • Research the founders and current leadership team
  • Assess their long-term vision for the company
  • Investigate the company culture and employee satisfaction
  • Check management's track record and alignment with shareholders

Analyze future growth potential​

  • Estimate the total addressable market
  • Identify potential avenues for growth (e.g., new products, markets, or acquisitions)
  • Consider broader industry trends that may impact the company
  • Evaluate the company's expansion plans

Identify and assess risks​

  • List potential threats to the business model
  • Consider regulatory, technological, or competitive risks
  • Assess the company's ability to adapt to changing market conditions
  • Evaluate any potential weaknesses in the business

Determine valuation and potential returns​

  • Compare current valuation metrics to industry peers and historical averages
  • Estimate future earnings and cash flows
  • Consider potential catalysts that could drive the stock price higher
  • Assess the risk-reward ratio of the investment

Summarize the investment thesis​

  • Concisely state the main reasons for considering the investment
  • Highlight the most compelling aspects of the business
  • Address any major concerns or risks
  • Decide whether to invest, add to a watch list, or pass on the opportunity