Don’t Be an Active Investor Unless You Have an Investment Thesis

If you don’t have a view that’s different from the market’s view, you’re better off as a passive investor

Stephen Foerster
9 min readAug 2, 2022


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After spending decades dedicated to investments research, I’ve come up with some pithy advice for all investors (despite my disclaimer that I don’t provide financial advice). I call it “Steve’s Surefire Method for Earning Millions of Dollars Through Investing” and I’m sure you’ll agree that it is surefire. It’s a simple two-step process:

  • Step 1: Have a view that’s different from the market.
  • Step 2: Be right!

Step 1 is really easy; step 2, not so much, as I’ve found from personal experience as well as academic research. If your view is the same as the market then your investment strategy should be straightforward: buy-and-hold an index fund, which is often referred to as a passive investment strategy because you don’t really need to do anything on your own. Conversely, if you’re an active investor, then to have any chance at successfully beating the market you need a process, which starts with defining what your view is — that’s where an investment thesis comes in.

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Investment Thesis Defined

Let’s start with a textbook definition of a thesis. According to, a thesis is: “a proposition stated or put forward for consideration, especially one to be discussed and proved.” Likewise, an investment thesis is something that you put forward about an investment, such as a bond or stock, and it will be proved correct if your investment does well, such as beating the market. Think of an investment thesis as a 15-second elevator pitch that is a reasoned argument, presented with conviction, based on your analysis (as opposed to your gut feel), as to why an investment should be undertaken, with expectations of profits.

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Stephen Foerster

I’m a Finance prof, CFA, and author of In Pursuit of the Perfect Portfolio (with Andrew Lo). I write stories about investing. (I don’t give financial advice.)