How can you use narrative structure to create a compelling investment thesis?

An investment thesis is a concise statement that summarizes your rationale for investing in a company, sector, or asset class. It should explain why you expect to generate superior returns and how you will measure your performance. But how can you craft a persuasive investment thesis that captures the attention and interest of your audience, whether they are clients, colleagues, or stakeholders? One way is to use narrative structure, a technique that organizes your information into a coherent and engaging story. Here are some tips on how to apply narrative structure to your investment thesis.

1 Define the problem

The first step is to identify the problem or challenge that your investment thesis aims to solve or address. This is the hook that draws your audience in and makes them curious about your solution. You should explain the current situation, the pain points, the risks, and the opportunities that exist in the market or industry. For example, you could say: "The global e-commerce market is growing rapidly, but it is also highly competitive and fragmented. Many online retailers struggle to acquire and retain customers, optimize their operations, and differentiate their offerings."

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Simon Godfrey

Asset Management, Investment Specialist and Advisory
(edited)
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Narrative is an integral part of how financial markets work and this has always been the case. "Sell on rumour buy on fact" is an age-old proof statement for this. Narrative drives investment flows throughout the origination / distribution cycle. The best investment narratives are generated organically by the interaction of finance with real economic activity. The key to a successful investment thesis, one that is recognised and acted on by other investors, is that it reflects a commonly-held wisdom that becomes self-evident. This means observing other investors and prevailing narratives at an early stage to identify those narratives that are emerging, with a high probability of driving future investment flows.

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2 Present the solution

The next step is to present your solution or recommendation, which is the core of your investment thesis. This is where you explain what you are investing in, why you believe it has a competitive advantage, and how it will benefit from the market trends or dynamics. You should provide evidence and data to support your claims, but also use simple and clear language to avoid jargon and confusion. For example, you could say: "We are investing in XYZ, a leading e-commerce platform that leverages artificial intelligence and blockchain technology to provide personalized and secure shopping experiences. XYZ has a loyal customer base, a scalable business model, and a strong growth potential."

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3 Address the objections

The third step is to address the objections or counterarguments that your audience might have about your investment thesis. This is where you anticipate and respond to the possible questions, doubts, or criticisms that could undermine your credibility or confidence. You should acknowledge the limitations and challenges of your solution, but also show how you have mitigated or overcome them. For example, you could say: "We are aware of the risks and uncertainties that XYZ faces, such as regulatory changes, cyberattacks, and competition. However, we believe that XYZ has a robust risk management strategy, a resilient security system, and a unique value proposition."

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4 Share the vision

The final step is to share your vision or goal, which is the outcome or impact that you expect from your investment thesis. This is where you inspire and motivate your audience to take action or support your decision. You should highlight the benefits and opportunities that your solution will create, both for your investors and for the society at large. You should also provide a timeline and a framework for measuring your progress and success. For example, you could say: "We are confident that XYZ will deliver superior returns and value for our investors in the next five years. XYZ will also contribute to the social and environmental goals of the e-commerce industry, by improving customer satisfaction, reducing carbon emissions, and promoting financial inclusion."

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