Ep 8: How To Write An Investment Thesis and Use a Stock Screener

Jess: Hello, fellow fit and fatales, you're listening to Market MakeHer, the self-directed investing education podcast that breaks down complex topics in an easy-to-understand way from her perspective.

Jessie: We're your hosts.

Jess: I'm Jessin Skipps, the resident finance expert.

Jessie: And I'm Jessie Dainouille, here to keep her out of financial jargon land.

Jess: And I'm your guide to financial empowerment.

Jessie: Thank you, Jessie.

Jess: You let me know.

Jessie: No worries.

Jess: The goal of this episode is to explain what an investment thesis is, how you can create one for your personal investing needs.

Jessie: And we'll also show you tools to learn how to choose a stock, ETF, or mutual fund with expert analysis.

Jess: Important note, since we are talking about how to find ideas today, we do want you to know that we still need to discuss how to effectively put your ideas to work.

Jessie: So a lot more episodes to come naturally.

Jess: Yes, we have a lot of information to cover.

Jessie: We want to make sure we have all of the tools and resources available to us to make good investment decisions.

Jess: Let's start off with the first question.

Jessie: Jess, what is an investment thesis? Do you remember back in school, we were in science class, which is my worst subject, by the way.

Jess: Great at math.

Jessie: Used to sell my math homework and drafting homework, but very bad, very bad at science.

Jess: So this is a great analogy.

Jessie: In science class, you had experiments where you would come up with an hypothesis and you would expect some type of outcome, but you didn't just say, okay, that's it.

Jess: You used anecdotal information, maybe it was something you were interested in, anecdotal meaning, you know, like what you've, you've learned throughout your life or through at that science time, something you found interesting to you, but you tested that theory with data.

Jessie: And then you came to your conclusion and decided if your hypothesis was right or not.

Jess: An investment thesis is just like that.

Jessie: It's just like science class.

Jess: You have a hypothesis.

Jessie: You want to use something that's applicable today that would be useful because when we invest in stocks, we are investing in a company that we expect to make money.

Jess: And if we're looking at that hypothesis, so it's a specific pocket or sector within the market or even an individual security or the overall market, you want to understand what's going to happen.

Jessie: And then you also want to validate that.

Jess: So we know how stocks make money.

Jessie: You want to validate how they've done that in the past, or if you have future expectations of that being continuing or you use analysts, things like that, but that's what it is.

Jess: It's your science project.

Jessie: Okay.

Jess: That makes sense.

Jessie: So let's say you are on TikTok or you're like overhearing a conversation and you see that people are buying a certain stock because whatever, it's trendy and people are talking about it.

Jess: So instead of just jumping on that bandwagon, like blindly going in and deciding to buy that stock, there are tools and resources for you to actually go do a little research and see if the hypothesis that this company is about to blow up or whatever people are saying is, you know, founded on any kind of data at all or any good analysis, right? Absolutely.

Jessie: It's perfect.

Jess: Beautifully said.

Jessie: You mentioned sectors a couple of times.

Jess: Should we get into what the different sectors are? Yeah.

Jessie: Because we've given a lot of examples so far.

Jess: Some of them have been super specific, like Microsoft, that actually I think was the only specific one.

Jessie: Otherwise, they all fall in different sectors.

Jess: There are 11 sectors.

Jessie: We've got another fun analogy for you to help you get through the sectors and also explain to you how the stock market is literally, literally around you.

Jess: So I'm going to take you through your day.

Jessie: First, we'll start with the technology sector.

Jess: I'm one of those people that hit my alarm 17 times and I have an Apple iPhone.

Jessie: I've got 20 of them just there.

Jess: James hates me for it.

Jessie: Yeah.

Jess: Mars isn't too crazy about it, how I get, yeah.

Jessie: I just keep sleeping in them.

Jess: Yeah.

Jessie: I'm just not a morning person.

Jess: Nonetheless.

Jessie: Neither.

Jess: Apple.

Jessie: Apple is my iPhone and that is my alarm and that's found within the technology sector.

Jess: My phone provider is AT&T.

Jessie: That's the consumer services sector.

Jess: So now we're at two sectors.

Jessie: When I finally decide to wake up, I will go to my bathroom and turn on the light somehow, try to feel for it.

Jess: That is the utility sector.

Jessie: So for example, Duke Energy or your energy company, your utility company.

Jess: Then I'm going to go brush my teeth, put a bunch of product in my hair, all the things, have some coffee, a diet Coke because I'm addicted to those.

Jessie: All of that is under consumer staples and consumer staples are things that we need, not that we want.

Jess: Let's assume that I have a doctor's appointment that morning.

Jessie: That would be the healthcare sector.

Jess: So your medical devices, the insurance that you use, doctors, that's all under healthcare.

Jessie: Maybe I go into my closet and find something to wear.

Jess: My closet is materials.

Jessie: So any type of construction, that's the materials sector.

Jess: Yeah.

Jessie: We're on six.

Jess: Then I'm ready to go.

Jessie: We've got to go gas up my car.

Jess: So I go to Exxon Mobil.

Jessie: That's the energy sector.

Jess: Then I've decided now that I'm gassing up my car that I want to go to the mall and I end up on Simon Properties because they're everywhere.

Jessie: Real estate sector.

Jess: Number eight.

Jessie: Now once I'm in the mall, I'm going to go to the store.

Jess: Maybe I'll go to Lululemon, that's what just pops in my head immediately.

Jessie: I don't think I own anything from Lululemon.

Jess: Number nine.

Jessie: That's consumer discretionary.

Jess: Maybe I'm going to go travel all of a sudden.

Jessie: This is a very long day.

Jess: That's the industrial sector, which is mainly aerospace and defense.

Jessie: So Boeing, like the plane, would fall under there, not the plane service.

Jess: I paid for that very expensive day, my gas, my shopping, and plane, and even my doctor's appointment all with a Visa credit card or MasterCard.

Jessie: That's the financial sector.

Jess: Ah, okay.

Jessie: So that's number 11.

Jess: Every stock will have a sector.

Jessie: It's like the parent folder of the stock that you categorize it in.

Jess: So when you have your investment thesis, but you don't know the stock, you start with the sector.

Jessie: We did an episode on what's happening with the stock market, and we've done a lot of episodes now on how the stock market works and how various components and investment vehicles work.

Jess: So it starts with understanding the stock market.

Jessie: We know that it's centralized around the consumer, where people are spending money, because when you spend money, that translates over to revenue, which is a component of earnings, which is what makes the stock market go up or down.

Jess: Then we know how the market works to affect the consumer, and we call it headwinds or tailwinds.

Jessie: There's words again that I need to describe.

Jess: Okay, what's a headwind and what's a tailwind? We call them macro headwinds and macro tailwinds.

Jessie: Macro, bigger picture, literally just in the name, and micro, smaller picture.

Jess: Think about flying in a plane.

Jessie: I know that going over to England, because my husband's British, I go over there quite often.

Jess: Going from the US over to England is a little bit faster because the wind is your tailwind, but on the way back, it's an hour longer because now the wind is a headwind.

Jessie: So it's what's blocking you and making your journey a little bit longer or what's going to help you get to your destination faster is a tailwind.

Jess: So basically, we want to find things that are headwinds that will be the solution at one point and turn them into tailwinds, and that's a great way to think about outperforming Do you have an example of a headwind, a tailwind? Yeah, a headwind right now is the supply-constrained labor market.

Jessie: There are too many jobs and not enough people to fill those jobs because there's imbalance in the labor market.

Jess: One way to bring equilibrium or that balance is if there's productivity, there's more productivity, you don't need as many jobs, and that's AI.

Jessie: And so artificial intelligence, that's just not one component of productivity, but absolutely a major one.

Jess: Even today, Pepsi reported earnings, and they did well due to their prices increasing a little bit, but they did even better because they started automating when they get things off the crate and then put it into the truck.

Jessie: That's all robots and processes.

Jess: That took away those job openings and any security that has exposure to that, that's our investment thesis, is automation will help with that headwind because the labor market is a headwind for the entire stock market, but a solution, which is automation, is a tailwind.

Jessie: When we decide which stocks or ETFs and mutual funds to buy, we want to kind of consider which companies are experiencing a macro headwind or macro tailwind, or is it bigger than that? It's bigger than that because macro is bigger.

Jess: So macro is the overall market, micro is minimal.

Jessie: And again, that's just jargon that unfortunately has been just drilled in my head.

Jess: You want to know the bigger issues with the market and the bigger issues with the economy.

Jessie: So maybe another example, we have an aging population.

Jess: Something that would benefit from that is the healthcare sector, because as we get older, we have more needs and that tends to be within the healthcare side.

Jessie: That also might be why the crude stocks are doing really, really well.

Jess: I really want to point that out.

Jessie: Right, because the aging population is leaving the workforce.

Jess: They are.

Jessie: They're doing more things like taking cruises.

Jess: That makes it like a tailwind, right? For the cruise industry.

Jessie: Absolutely.

Jess: And for the healthcare industry, because as we get older, we need more healthcare.

Jessie: So the aging population is the macro headwind because they're leaving the workforce.

Jess: But as a result, it's a tailwind for certain industries like cruises and healthcare.

Jessie: Okay, that's right.

Jess: So when it comes to creating an investment thesis, before you just go crazy picking stocks and buying things and spending your money, you basically use things that you know about the world and what's going on, how consumers are spending, what kind of jobs there are and aren't anymore, how unemployment's going, all these things you take into consideration and always look back to your investment thesis to say, does it make sense for me to buy this stock or this ETF or whatever, right? Yeah, it becomes your guide.

Jessie: And this is what professional hedge managers do.

Jess: This is what professional strategists do.

Jessie: They have an investment thesis and they'll say, okay, this year, the market, the challenges that they're facing is this constrained labor supply issue or there's a housing supply issue driving prices up.

Jess: The population is aging.

Jessie: They'll take all of the challenges that are in the market.

Jess: When there's challenges, there's always opportunity.

Jessie: Let me find the stock with the revenue exposure to that solution and that will be the company that I want to look at.

Jess: That's the first part.

Jessie: Then we've got to validate it with data and our process.

Jess: Extremely important.

Jessie: Okay.

Jess: So basically this is what all the rich people are doing.

Jessie: They have an investment thesis and that's like how they are making decisions and making money basically.

Jess: Absolutely.

Jessie: Like part of a good strategic investment process.

Jess: That's right.

Jessie: And the stock market is literally, literally around you and we just have to connect the dots.

Jess: You see chat GPT going crazy on TikTok.

Jessie: Guess who's there? You.

Jess: And if there is a lot, the masses are using it.

Jessie: That's revenue from Microsoft and that translated into their earnings.

Jess: Now that starts with the idea.

Jessie: So it's not go see it, go buy it.

Jess: It's go see it, go validate it.

Jessie: Now let's get into the tools.

Jess: Yeah, I'm so excited.

Jessie: This is probably my favorite tool of all time.

Jess: Definitely a better version of a screener.

Jessie: This is on Merrill's platform.

Jess: So you can access this if you have an account.

Jessie: There's a tool called a screener.

Jess: Every brokerage firm has one, right? They do.

Jessie: Yes.

Jess: So, and it's just the different versions.

Jessie: And so we've got a really great guest coming up that's going to tell you how to choose a brokerage firm.

Jess: So within screeners though, what they do is they help you filter through data.

Jessie: And this one in particular helps you filter through data with your ideas.

Jess: It's called Idea Builder.

Jessie: It also has some of the beginner aspects that we talk about as well.

Jess: If you don't want to choose a stock and maybe you just want diversity and you want the major market index ETFs, which we know are passive funds, you can just click on that and then you'll see all of the funds and the information that you need.

Jessie: Oh, cool.

Jess: So that's all of the S&P 500 ETFs right here.

Jessie: It's across different brokerage firms.

Jess: It's not just like the Merrill Edge ones.

Jessie: It's all of them.

Jess: Yeah, that's right.

Jessie: These aren't even Merrill ones.

Jess: These are iShares and SPDR and some major, major indices.

Jessie: This is your starting point.

Jess: So think of this as you're literally browsing Netflix and you're trying to find an idea of what you want to watch.

Jessie: And then maybe you want to just read some reviews and get more data because this is your money we're putting to work.

Jess: So we're going to do a little more homework.

Jessie: Basically, it's like a table.

Jess: So we see IVV, SPLG, SPY, VOO, four different securities that track the same underlying index, the S&P 500.

Jessie: And I get that question all the time is, okay, I'm going to buy the S&P 500.

Jess: Which one do I pick? Well, the first thing I would look at is the expense ratio, which is the cost of managing that fund, even though it's passive.

Jessie: And if something's higher than the other, then we should knock that out.

Jess: Because they're all going to be managed expertly, right? Yep.

Jessie: One of these has a gross expense ratio of 0.09 and the others are all 0.03.

Jess: So it makes more sense to pick one of the ones that are 0.03.

Jessie: So now I'm showing you a cool version of a stock screener.

Jess: Let me show you a traditional one that most brokerage firms show it.

Jessie: They'll have investment themes, curated stock lists, like Warren Buffett stocks, notoriously.

Jess: So it's like everything he buys? Yep.

Jessie: Click on it.

Jess: There's all his stocks.

Jessie: There's 251.

Jess: There are thousands of securities.

Jessie: Screeners help you filter through those securities.

Jess: One of my favorite shopping websites is Revolve.

Jessie: There are so many clothes.

Jess: They just have so many, but they have a process for you to filter it.

Jessie: You can go through dresses.

Jess: You can say, I want a cocktail dress.

Jessie: You could say, I want a midi dress.

Jess: I would like a dress that's off the shoulder with a sweetheart top.

Jessie: All of that is filtering down.

Jess: There are thousands of results down to a little less.

Jessie: And then I could say, I want navy blue dress and I want it to be chiffon.

Jess: I probably have a lot less results.

Jessie: So that's what we're doing here.

Jess: But in order to define all of that criteria, you need to have an investment thesis and you need to know how a stock works.

Jessie: And that's why we started with that because this is all the criteria that we can sort by.

Jess: Stay with us.

Jessie: We'll be right back.

Jess: Ready to plug into the future? Join myself, Sean Leahy.

Jessie: And me, Andrew Maynard.

Jess: On Modem Futura, where we explore the technologies shaping our futures.

Jessie: We bring the experts, the insights, and a whole lot of curiosity to every episode of Modem Futura as we boldly go where no one else has gone.

Jess: So join us as we navigate the intersection of innovation and innovation.

Jessie: Of innovation and humanity, uncovering the stories that will define our collective futures.

Jess: Subscribe to Modem Futura, wherever you get your podcasts.

Jessie: We'll see you there.

Jess: See you then.

Jessie: Well, I guess you would start with what's in your thesis.

Jess: Notice that we started with a predefined screener, Warren Buffett stocks, which has 251.

Jessie: If we were to take that off, 11,289.

Jess: But this will really narrow it down.

Jessie: Analyst opinions, and everyone will have this, is you could say five star from morning star.

Jess: We're down to 90.

Jessie: Just morning star five stars.

Jess: Okay.

Jessie: So you can very quickly, very quickly filter that list.

Jess: Yeah.

Jessie: This to me, though, is intimidating.

Jess: And that's why I showed you this.

Jessie: Because now we can say, Yeah.

Jess: It looks a little bit more like Netflix too.

Jessie: It does.

Jess: Interface.

Jessie: Yeah.

Jess: Yeah.

Jessie: It's good UI.

Jess: So great.

Jessie: I personally know the whole team that made this.

Jess: And used to work.

Jessie: We are not sponsored by them either.

Jess: No, we're not.

Jessie: That's very important.

Jess: And they're probably listening.

Jessie: Great job, guys.

Jess: It's an awesome tool.

Jessie: Even they have sustainable.

Jess: So if you want to do climate action or decent work in economic growth, there's just so much here.

Jessie: But let's go back to our investment.

Jess: Oh, wait.

Jessie: So is that the, if you go down, it says the, it said something about like the aging population or something.

Jess: Yes, it did.

Jessie: So we decided our investment thesis is the aging population.

Jess: And now we'll see all the stocks that fit that theme.

Jessie: And then like an Excel spreadsheet, you could sort it by price.

Jess: If that's what you care about.

Jessie: These, the way that this tool works is it will only filter in if it has a buy rating.

Jess: Oh, like the analysts are saying to buy it.

Jessie: That's right.

Jess: And then it's filtered in through who would benefit from that.

Jessie: Because it's not only healthcare, it's also financials, consumer, and REITs, physical therapy.

Jess: That makes sense.

Jessie: And REITs are? Real Estate Investment Trusts.

Jess: Need a whole nother episode to explain that.

Jessie: Yeah, I've heard about those.

Jess: And before I knew that these tools existed, I saw a girl on YouTube talking about them.

Jessie: And I also decided to invest in some, which, you know, now I know better.

Jess: I know to come to a tool and do a little bit of the analysis for myself.

Jessie: Those are more complex than people even realize.

Jess: So like the anger that just comes over me.

Jessie: I think it was more to do with, was that, do they have high dividends? Yeah.

Jess: Can we look at one more idea maybe? Like what would our investment thesis be? So we heard about something.

Jessie: Everyone left AI.

Jess: So I came here, I pulled AI and big data.

Jessie: That's what we're looking at.

Jess: The top stocks that are exposed to it.

Jessie: We have like two different audiences here.

Jess: Those of you who haven't really gotten started, or you're just kind of like starting to get into all of this investing and figuring out like what to save for for the future.

Jessie: You can do more passive investments.

Jess: You can still use a screener and look up different ETFs.

Jessie: Say you want to invest in the S&P 500 because you know it's a broad based index.

Jess: You can look at all the different ETFs that mirror the S&P 500 and see the different price points.

Jessie: They're down from there.

Jess: If you're someone who already has some investments going, if you have a higher risk tolerance, I guess, then you can also go to the screener and say like, okay, I want to buy some stocks.

Jessie: I want to try to make a little bit more money, play the market in a different way.

Jess: And so you can use a screener to help you validate that theory you have.

Jessie: Right? See like, okay, this is something I definitely want to buy.

Jess: It's not gambling.

Jessie: It can be.

Jess: Investing in the stock market can be gambling.

Jessie: So when you make a decision, you should always be calm, calculated, and collected.

Jess: Meaning I'm not making a decision out of fear.

Jessie: I'm not making a decision out of fear of missing out.

Jess: You are literally making a decision based on your investment thesis.

Jessie: You validate that by doing your homework and looking at the stock.

Jess: You need to know what tools and resources are there that your brokerage firm has.

Jessie: And guess what? We just showed you one screener.

Jess: Those are free at all of your brokerage firms, which is great.

Jessie: I never really knew that.

Jess: Yeah, now that we know what we're looking for, we can find the information that we need.

Jessie: Do your homework.

Jess: Yeah.

Jessie: Make strategic choices.

Jess: That's right.

Jessie: And I guess coming up with an investment thesis, it's good to have something to start with, right? It's an emerging trend.

Jess: When you are coming up with an investment thesis and people say that, they're saying, this is what I think will outperform this year.

Jessie: Okay.

Jess: What do you think is going to make money? Where are people spending their money? Are all of your friends traveling? Let's look at airlines.

Jessie: What companies do you think will make the most money and why? So an investment thesis is the hypothesis you write of what you think is going to generate revenue and why.

Jess: And if there's a company or sector or something out there in the world that's solving a problem either happening now or one that might emerge just based on what's going on or what you're seeing trending, like use your own personal experience of what you interact with, what you see.

Jessie: It might give you an idea of something you want to invest in.

Jess: And so you have this thesis, like this is what I think is good to invest in.

Jessie: Now, let me go investigate why and use free tools that are out there at different brokerage firms like screeners.

Jess: Maybe you don't want to go too far.

Jessie: You just want to see like some trusted analyst ratings and it verifies that, yes, this is a good stock for you to buy.

Jess: For example, a stock ETF for you to buy or maybe it's not because it doesn't fit into your personal criteria.

Jessie: And that's something I guess you kind of develop over time.

Jess: Start getting curious and looking up stuff.

Jessie: Is there something you like to use personally? Is there something that you hear everyone talking about and you want to know more about it? This is a good place for you to start.

Jess: So beautiful.

Jessie: So I'm just connecting all the dots together in my head, but your investment thesis can change.

Jess: The next thing we kind of have to think about now that we know how to investigate trends, we need to think about what our personal investment strategies are.

Jessie: And we might need to talk about strategic investing at some point and obviously how to make sure we're diversified in our portfolios.

Jess: Yeah.

Jessie: We have a couple of episodes that we need to cover to get you adequately prepared, you being our listeners.

Jess: We need to talk about how to choose a brokerage firm.

Jessie: We have a very wonderful guest that has agreed.

Jess: So we're excited for that.

Jessie: Two, we need to talk about strategic planning and how to put those funds to work and execute upon your ideas.

Jess: Because we're talking about investing for the long term.

Jessie: We are not talking about actively trading.

Jess: Right.

Jessie: And diversification, your risk tolerance.

Jess: We showed you tools to spark curiosity.

Jessie: We laid the foundation before we set the table.

Jess: Now we just gave you, we're going to be European style.

Jessie: We gave you appetizer cocktails.

Jess: Little upper teeth, little upper t-bow.

Jessie: Yes.

Jess: That's what we just said.

Jessie: So we still haven't had our main course yet.

Jess: We're just getting saucy.

Jessie: We're getting there.

Jess: So we're sparking your curiosity.

Jessie: We're making it safe to have a conversation, which requires appetizer cocktails.

Jess: Hopefully breaking down some of those barriers and walls that were up that made you feel like the world of investing was confusing and not for you.

Jessie: Because it is for you.

Jess: It's for everyone.

Jessie: We did a lot of high level stuff today.

Jess: So we can get into the details of picking a stock, literally one stock going through it.

Jessie: And we can also get into the details and we need to, and we'll do this one next, about mutual funds and ETFs and how to compare and contrast.

Jess: We also haven't talked about employer plans.

Jessie: That's a major part of your total investment strategy.

Jess: And then funds for your kids.

Jessie: There's just so much to talk about.

Jess: So we always put a question in Spotify.

Jessie: So please make sure that you ask your question there or even put episode suggestions.

Jess: And we'll make sure that we always prioritize what you ask us.

Jessie: Check out the episode equity.

Jess: Ask your questions.

Jessie: I'm still working on Jesse's notes.

Jess: I finally finished the one for the stock market.

Jessie: So I'm going to be posting that soon.

Jess: That's in our dividend section.

Jessie: And we also have extra resources.

Jess: We're working hard.

Jessie: We got a lot going on, but we're trying to give you all everything that is beneficial and helpful to make you make good investment decisions.

Jess: Take your money, give it a job to make more money, make the money, make money.

Jessie: That's what we're all here to do so that we can retire and not have to work forever.

Jess: Thank you so much for listening.

Jessie: Please share this podcast with anyone who you know that might find this information we share valuable and keep the conversation going on our TikTok, our Instagram, our Twitter, our Pinterest, all the social media platforms.

Jess: I think we just started a lemonade.

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Jess: So please search up the Market MakeHer podcast community.

Jessie: There we're going to spark really great conversations.

Jess: So excited to have you join that.

Jessie: Until next time, remember when you build knowledge, you break barriers.

Jess: Remember, investing involves risk.

Jessie: There is always potential to lose money when investing in securities.

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