One of the leaders in this energy transition is Brookfield Renewable. It has one of the largest globally diversified renewable energy platforms and an even bigger pipeline of development projects. Brookfield also has an extensive track record of creating value from the sector, including two decades of steady income and dividend growth, driving superior performance.
Brookfield is also well positioned to navigate the biggest risk facing the industry — access to low-cost capital to finance capital-intensive development projects — due to its rock-solid financial profile backed by a top-notch balance sheet. Given Brookfield's position within this megatrend and its historical success, I have high conviction that it can deliver market-beating total returns for years to come and would consider adding to my position on any meaningful price decline.
This example succinctly lays out the catalyst (the renewable energy megatrend), the investment opportunity's position in the trend (Brookfield is a global leader), its ability to withstand risks (Brookfield has a top-tier financial profile), and my conviction level (high).
An investment thesis isn't just for stocks; you can craft one for any investment opportunity you're contemplating. For example, you might have the opportunity to invest in a new business venture or a private company. To write an investment thesis for a venture capital or private equity opportunity, you would follow the same outline.
Here's a simplified investment thesis for a new coffee shop:
People love coffee. Demand for the brewed beverage is on track to grow at a more than 8% annual rate through 2025, according to Statista. It also notes that, by 2025, 84% of coffee spending and 21% of the volume consumed will be outside the home. That growing market will benefit coffee shops.
This particular shop would be the first one in a trendy area of downtown that's undergoing a dramatic revitalization. While restaurant retail can be brutal, the group starting the coffee shop has opened several profitable locations around the city in recent years. Their past success, when combined with the coffee industry's growth, suggests this new shop should thrive. Because of that, you have a high conviction that this investment will earn a much greater return than if you invested the money in another retail opportunity.
With this venture capital investment thesis we've:
- Identified the catalyst: Growing demand for out-of-home coffee consumption.
- Classified this particular investment opportunity's position within the catalyst: First mover in a trendy area.
- Determine all the risks facing this venture: Retail is brutal.
- Considered the conviction level: High compared to other retail opportunities.
