It isn't a coincidence that many great investors are also great writers. But what can investors learn from the way these investors, and other accomplished writers, communicate? One lesson is to start anything you write with a thesis statement that encapsulates the message you're trying to convey -- much like an elevator pitch.
In this clip from the Industry Focus: Financials podcast, The Motley Fool's Gaby Lapera and John Maxfield talk about the role that pitches play in writing and proving out investment theses.
A transcript follows the video.
This podcast was recorded on April 11, 2016.
Gaby Lapera: I don't know if this makes particular sense to me because I'm a highly verbal person, so I think in words and having things in words helps me check the internal logic of my thought and justify my conclusions in a place that's outside of my brain. Because when it's all inside your head sometimes you can kind of gloss over the parts that don't make 100% the greatest of sense, but when it's all written out you can actually check everything. Because it's all written out, you don't have to remember everything in your head, you can just look at it and see if it all fits together. But to do this you have to write in a particular way. We're not talking about creative writing, because that's a whole different kettle of fish. It's a little bit, it's a lot more like science writing, which is something I am a huge fan of and something I have taught before.
The number one thing that you need in any single piece that you write is a strong thesis statement. Not just a strong thesis statement, the thesis statement needs to be at the beginning of whatever it is you're writing so that everything you write relates back to it. Every time you start a new paragraph, your topic sentence should be something that helps support your thesis.
John Maxfield: To your point Gaby, this is a rule that ... Just to kind of put this all in perspective, this is a rule that not only, and we are going to go through a handful of rules here. They not only apply to investing but just to writing in general. Even if you're not writing about investing, if you are writing an email, right? If you are writing a memo to your boss, whatever it is, these really simple rules will help you become better writers. They're really kind of the distilled wisdom of myself, Gaby and other people who have written and edited on a professional level now for some time. To your point Gaby, there's a tendency for writers to think that what you should ... The objective is to get the reader to read to the very end of their piece. So one of the things that they do is they hide the ball. I don't know where this came from, maybe I'm just making this up in my head, but this has been kind of my experience and my progression in writing. What you really want to do, you don't want to reserve information until the end, you want to put it right out immediately.
That very first sentence or two, which newspaper writers refer to as the lede, is a really critical thing to do. To put out your thesis right then, then throughout the rest of your piece, both yourself and the reader can test the logic of your thesis. Let me give you an example. Let's say I want to talk about Bank of America. I want to say Bank of America is a buy right now. Well, you shouldn't lay out the evidence first and at the very end say Bank of America is a buy right now. You just come right out at the very beginning and say "Look, Bank of America is a buy right now." Then you lay out your logic: It's trading 40% below book value, its return on assets is 25% below -- 1% is kind of the industry metric that you want, that it should eventually get up to -- and they know blah blah blah blah. You hit all those logical things and then the reader along the way can test your analysis.
Lapera: Absolutely, this is actually huge pet peeve of mine, that people do not include thesis statements. When I was a graduate student, I would often grade undergraduate papers and people would turn in entire essays without a thesis. And I was working in a science. I don't know why, if you're an undergraduate out there and you're writing a paper right now and it's not for a creative writing class, go back and check to make sure you have a thesis. Sometimes it's hard to write a thesis at the very beginning, maybe you don't know exactly what you're going to write about. In that case write your entire essay, go all the way down the bottom, take your conclusion paragraph, make it your intro paragraph and write yourself a new conclusion. By the end of the paper, I hope you gosh darn well know what you are writing about. I'm so sorry, I feel very passionate about thesis, like ... I feel very strongly, I don't know if you can tell.
Maxfield: But Gaby, that point that you made about the conclusion is a really good point. A well designed piece is kind of like a circle. You will begin and end at the exact same points, which are your thesis. When we talk about thesis, what we are talking about is the point that you're trying to convey in that particular piece.
