An Investment Thesis: The Key To Making More Money Long Term
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In general, the longer you stay invested, the greater your chance of making money. To help you maintain a long-term investment approach, it’s imperative to develop an investment thesis.
Drawing from my experience in investing since 1995, it’s sometimes easy to get shaken out of a particular investment. Or it’s easy for some people to just keep their money sitting in cash out of fear of financial loss. I get it. I’ve lost plenty of money before because there are no guarantees when you take risk.
I observed panic selling during the 2000 dot bomb and 2008 global financial crisis, affecting both stock and real estate sellers. More recently, I witnessed panic selling at the beginning of the global pandemic in 2020. The events lead me to try and allay fears with the post, “How to Predict the Stock Market Bottom like Nostradamus.”
Having a solid investment thesis, as long as it remains intact, will provide you with the courage and confidence to hold on for the long term.
The Importance Of Developing An Investment Thesis When Investing
Let me go through some examples of how having an investment thesis has helped me hold long-term and make more money overtime. Coming up with an investment thesis also helped me make a significant decision on a recent dilemma. At the end of this post, I’ll also share what makes a good investment thesis.
If you are just starting out and are fearful of investing your hard-earned money, developing an investment thesis will help you take action as well. To beat inflation, you must continuously invest over the long term. If you don’t overcome your fear of investing, then you will likely fall way behind over time.
Please know that you don’t have to be a great investor to make money. You just need to be a good-enough investor to significantly outperform a large part of the population that does not save and invest aggressively.
1) Heartland Real Estate Investment Thesis
In 2016, I published my post titled “Focus on Trends: Why I’m Investing in the Heartland of America.” My investment thesis was based on the anticipation that more people would relocate to lower-cost areas of the country due to advancements in technology and the increasing ability to work from home. Additionally, I believed that Trump’s victory would contribute to increased interest, funding, and expansion in red states.
Given the uncertainty of which specific real estate investment deal to pursue, I opted to invest in a couple of funds that focused on acquiring real estate in the heartland of America. Now, eight years and $954,000 later, I have generally witnessed positive returns on my investments. Texas properties, in particular, have performed quite well since 2016. However, as I shared in my post on private real estate investing after eight years, there have also been some duds as well.
Investing for such an extended period has been relatively straightforward. In the realm of private funds, the expected distributions typically span between 5-10 years.
2) San Francisco Real Estate Investment Thesis
When I arrived in San Francisco in 2001, I was amazed by the affordability of real estate compared to New York City. Properties were priced 20 to 30% lower, offering more space for the same cost or a similar property for less.
At that time, compensation in the finance industry was comparable between the two cities at my level. My investment thesis was that prices in SF would catch up to prices in Manhattan due to a better quality of life and the growth of technology.
Didn’t Want To Miss Out On The Tech Boom
My firm played a role in taking Facebook and Google public in the early 2000s. As a result, I anticipated a resurgence in Web 2.0. Lacking the skills or connections to enter the tech industry, I opted to invest in tech stocks and acquire rental properties instead.
Overall, San Francisco property prices have shown positive performance. However, the city’s reputation suffered post-pandemic due to perceived hesitancy by officials to address criminal activities and remove drug dealers downtown.
Thankfully, to stay in power, politicians must address corruption, tackle crime, clean up the city, and provide tax incentives for businesses to thrive. Citizens discontented with criminal activities are likely to vote out ideological politicians and judges who harm the community. Consequently, there is potential for the city’s image to be restored, leading to a recovery in real estate prices.
Deja Vu With Artificial Intelligence
From 2023 until now, there has been an extraordinary surge in tech stock prices. Fueled by substantial bonuses and robust portfolios, I anticipate that a portion of this wealth will flow back into San Francisco Bay Area real estate. Redfin reports that luxury home prices are reaching all-time highs, attracting a significant number of all-cash buyers.
The rise of artificial intelligence (AI) is evoking a sense of déjà vu, reminiscent of 25 years ago when the internet promised to revolutionize the world. Today, it is equally apparent that AI will shape the world in the next two decades.
Despite the likelihood that most of us won’t secure lucrative AI jobs due to intense competition, there’s an opportunity for ordinary individuals to invest in AI companies. Beyond public companies like Nvidia, Microsoft, Google, and Facebook, private investments can be made through open-ended venture capital funds like the Innovation Fund.
I am personally adopting this approach by investing in both public and private AI-related companies. My goal is to allocate $500,000 to these companies over the next five years. This strategy not only positions me for potential gains but also serves as a hedge against the challenges AI might pose for our children in terms of job opportunities.
AI Facilitated My Property Decision
In my previous post, “Rent out, sell, or create a wellness center,” I detailed my dilemma regarding what to do with my old house. At 46 years old, with two young children and already managing four rental properties, the prospect of overseeing another rental didn’t appeal to me.
Being a landlord can be burdensome, particularly when dealing with challenging tenants or constant maintenance issues. Such responsibilities take away time that could be better spent on more enjoyable activities, like playing tennis or spending quality moments with my kids.
After reading through the comments on my post, which provided diverse opinions on the course of action, I weighed the options and arrived at a decision to rent out the house and hold it for the long term. The deciding factor was the formulation of an investment thesis.
Why Renting Out Is Better For Now
My investment thesis revolves around the belief that owning a single-family home on the west side of San Francisco is a sound decision. Local economic catalysts, including the opening of a large school in the fall of 2024 and the $4 billion renovation of the UCSF Parnassus Hospital by 2030 (expected to create 1200 new jobs), indicate a positive trajectory for real estate on the west side.
Remote work is here to stay. In addition, there is a demographic transition from downtown on the east side to the west side. The final catalyst for my decision to rent out is the anticipated wealth generated by Artificial Intelligence (AI) for employees and investors. I will suck it up as a landlord for the next 3-5 years and then reevaluate.
3) The Vision Pro Investment Thesis
I’ve owned Apple stock since 2012 and it has done well. With the S&P 500 surpassing 4,900, I’ve faced increasing challenges in finding compelling stock investments. However, when the Vision Pro was unveiled on February 2, 2024, my interest was piqued.
At that time, Apple had just reported somewhat soft quarterly results, causing a dip in the stock. I contemplated whether this could be the opportunity to further invest in the company. After dedicating several hours to researching the Vision Pro, I concluded that the answer was affirmative.
Apple’s new Vision Pro is a significant accessibility tool for the visually impaired. Approximately 2.2 billion people worldwide experience some form of visual impairment. While an estimated 237 million face moderate to severe impairment. Among them, 40 million are considered legally blind or completely blind. This figure is expected to rise to 115 million by 2050.
Consequently, I believe the Vision Pro holds the promise of greatly assisting a substantial portion of the global population in enhancing their vision and interaction capabilities. Considering the critical importance of sight, the demand for this product should be relatively inelastic for the visually impaired. Furthermore, Apple is likely to enhance the product over time and reduce its retail cost. I can’t wait for version 2 and 3.
An Example Of How The Vision Pro Can Help The Visually Impaired
If you have regular sight or can correct your myopia or hyperopia with glasses or contact lenses, then you might take for granted your vision. Seeing a small screen on your phone or the 10-point font size on a menu is usually not a problem. For for those with visual impairments, it can be.
This Vision Pro commercial succinctly captures one of its many benefits for the visually impaired.
Apple is already an outstanding company with intelligent employees and an impressive product line. Further, it is cash flow positive with substantial cash reserves and a dividend payout. My confidence in investing in Apple stock aligns with my confidence in the S&P 500. However, I anticipate additional upside potential, particularly with the introduction of the Vision Pro.
Note: The definition of legally blind means the inability to correct your visual accuity to at least 20/200 with corrective lenses. Most people can correct their visual acuity to 20/20 to 20/40 with glasses or contacts. Legally blind usually does not mean complete blindness, as many people who are legally blind still have some vision.
America The Great: The Ultimate Investment Thesis
I harbor a home country bias as an American patriot. Residing in this country since 1991, paying six figures in taxes annually since 2003, witnessing my children’s birth on American soil, and crafting over 2300 personal finance posts aimed primarily at aiding Americans in achieving financial freedom sooner—these experiences have fostered my deep connection and commitment to this nation.
I envision my final days in America, leaving behind a positive legacy. Consequently, my long-term outlook is bullish and biased on owning American assets.
The greatness of America, in my belief, stems from:
- Entrepreneurial spirit
- Strong work ethic
- A stable democratic government
- A robust legal system safeguarding intellectual property and individual rights
- A formidable defense industry ensuring citizens’ protection
- A stable world currency
- Generally thoughtful and kind people aspiring to assist others globally in attaining freedom
- A history of unity during times of crisis, exemplified by events like 9/11 and the pandemic
While acknowledging America’s challenges—crime, poverty, socioeconomic injustices—I consider it unwise to bet against its long-term excellence. The collective willpower of our nation, I believe, will drive ongoing positive improvements.
I advocate that everyone, globally, should find a way to own a piece of America, be it through the S&P 500 or U.S. real estate.
In 50 years, when our grandchildren become adults, they will appreciate our foresight in investing in America today. Despite inevitable economic fluctuations, with a well-defined investment thesis, we stand to accumulate wealth beyond our current imagination.
What Makes A Good Investment Thesis
A good investment thesis is a well-researched and articulated rationale behind an investment decision. It serves as a comprehensive guide that outlines the reasons and expectations for choosing a particular investment. Here are key characteristics of a good investment thesis:
- Clear and Concise: The thesis should be easily understandable and to the point.
- Supported by Research: Ground your thesis in thorough research, including fundamental analysis, technical analysis, and an understanding of relevant economic and market trends.
- Alignment with Goals: Clearly state how the investment aligns with your overall financial goals and objectives. Whether it’s capital appreciation, passive income generation, or risk mitigation, the thesis should reflect your goals.
- Identifies Investment Opportunity: Specify the investment opportunity or opportunities you have identified. This could involve a specific asset class, industry, sector, or individual securities.
- Analysis of Risks: Acknowledge and assess the risks, challenges, and uncertainties associated with the investment.
- Time Horizon: Clearly define your time horizon for the investment. Specify whether it’s a short-term trade, a long-term hold, or something in between.
- Competitive Advantage: Understand what sets it apart from competitors and how it plans to sustain or enhance that advantage.
- Financial Metrics: Include relevant financial metrics supporting your investment decision. This may include valuation ratios, growth rates, profitability, and other key financial indicators.
- Scenario Analysis: Consider different scenarios and outcomes. A well-thought-out thesis anticipates how the investment might perform under various circumstances.
- Adaptable and Dynamic: Recognize that market conditions can change. A good investment thesis is adaptable and allows for adjustments based on new information or changing circumstances.
- Exit Strategy: Clearly outline your exit strategy. Know under what conditions you would sell or reduce your position.
- Communication: Share your thesis with others to find any blind spots, like I am with this post. Others should be able to understand your rationale and analysis.
Having a good investment thesis won’t guarantee success, but it’s like a roadmap for your investments. Keep updating it based on what’s happening in the market, and make sure you invest for the long term.
Investment theses can vary in quality, and sometimes you might get the investment right with the wrong thesis. The main thing is to have a good reason why you’re investing, so you stick with it over time.
In 10 years, you’ll probably end up with a lot more money if you’re the kind of person who keeps investing for the long haul, compared to someone who doesn’t invest or tries to time the market. Decide which situation you want to have in the future.
Reader Questions
Share an investment thesis you have about a particular investment you are bullish on. How can we convince more people to come up with an investment thesis and hold for the long-term?
Invest In Private Growth Companies
If you believe artificial intelligence will be an important economic driver, check out the Innovation Fund. It invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund invests in artificial intelligence. In 20 years, I don’t want my kids wondering why I didn’t invest in AI or work in AI.
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
Fundrise is a long-term sponsor of Financial Samurai and Financial Samurai is an investor in Fundrise.
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