Winning Stock Pitches: 8 Tips


A key part of any successful written stock pitch is conveying in a clear, concise, and commonsense way how the company makes money. Yet, too often people write vague, disjointed, or hard-to-follow descriptions of how the business works. Why? Because it’s easier and faster. However, a solid understanding of the business makes it tangible to the pitch reader and is the glue that holds the fundamental investment thesis and valuation analysis together. The parts of the pitch can never work together as a whole without it.

In fact, a good write-up of How The Business Makes Money is invaluable even if it is just for yourself, because good writing has a magical way of crystalizing and improving one’s own thinking. The process inevitably spurs more questions, like well…is that really true? These are questions you need to answer with more research, and they will sharpen your thinking and process.

With that in mind, here are 8 tips for the How They Make Money section of your investment memo:

  1. Brevity Is Your Touchstone – Let’s say your investment memo is no more than 5 pages excluding the appendix (this makes me think of how Charlie Kaufman said “about 120 pages” when asked what a screenplay is). You need room for your thesis, the industry, ROIC analysis, valuation…so, you are probably looking at 1.5 pages, maximum, for How Do They Make Money. That’s tough because some businesses and industries are pretty complicated. But keep telling yourself it can be done for any business – because it can. As a professor of mine once said at the beginning of a written exam: “Use the rapier, not the mallet, people…I have to actually read these, please don’t dump words on me.” See the next tip.
  2. Write and Rewrite – Start by writing a lot, and keep whittling it down, ideally over several sittings/days as you distill the essence of what you are trying to convey. Cut. Rethink. Cut again. Refine. Repeat. This is a rule that applies to every aspect of a written stock pitch but also all writing in general. Remember that Abe Lincoln quote about how, if he had more time to prepare his speech, it would have been shorter. Clear writing is clear thinking. Let your readers benefit from the time and thinking that went into your writing. If the writing is short and clear, they will instantly grasp what you are communicating and likely appreciate how you conveyed something somewhat complicated and important in such a small amount of space. This will add to your credibility in the pitch, even if the reader isn’t conscious of it.
  3. No Jargon Or Acronyms – I don’t care how specialized your strategy is, or how experienced your investment pitch readers are: jargon and acronyms are stock pitch killers. Using indecipherable language in your description of How The Business Makes Money won’t make you look smart or knowledgeable but it will tell your reader that you don’t care enough to take the time to write clearly and responsibly. Spell out the words that make up an acronym the first time you use it (after that using the acronym is fine), and provide a sentence or two of background for what you might think of as common knowledge for say, shale fracking, or rDNA. Then you can go deeper with scientific or engineering terms by using links and the appendix, as discussed below.
  4. Use Links – Hyperlinks are a great gift of the Internet. Most likely your reader will be reading your pitch on a tablet or a computer (hopefully not their phone), so links are a great way to let them choose if they want to know more about something or skip it so they don’t get slowed down getting to your mouth-watering thesis, without you having to burn space providing definitions of terms or concepts. You can link to anything on the Internet, or another document that you wrote – whatever. There are many great examples of this, but one I liked recently was a stock pitch that described the consensus view on the stock, with a hyperlink from the word “consensus” to a very recent piece of sell-side with…the consensus view and the reasoning behind it. Another good practice is to link to examples of key documents that are used in the company’s operations. For example here is a link to the Terms of Service for a typical sales contract from a writeup I did on Hubspot. I wrote about Hubspot recurring revenue and retention rates – showing a customer contract that addresses key terms related to renewals and pricing, for example, makes what I wrote much more tangible.
  5. Judiciously Paste In Company Copy/Visuals – Every stock pitch reader is constantly asking themselves: “How reliable is this work/the writer?” So, it’s a good idea to occasionally directly reference the company’s materials when explaining the business. If the company put it in an SEC filing, a lawyer carefully vetted the information, so it’s probably reliable. Same thing for graphs, charts, or other data from company presentations. But don’t go crazy. Think of this as a sprinkling on your work for emphasis, rather than your work. Also annotate the source for the reader via a link, so they can go right to it. I have also seen analysts successfully create and insert their own simple diagrams with PowerPoint or other apps, or annotate company visuals with a few notes. If you know how to do this it can be a great idea, if it is kept simple.
  6. Use Tables – Tables can be a magical way to convey lots of information in a very small amount of space. Lists of things like business segments, executives, key assets, business regions, etc., and data points or notes on each are perfect for a table. Always ask: can what I just wrote be in a table instead? Tables also help break up text, which is important because an endless sea of text makes people more likely to just give up reading. Remember when you were 8 years old and didn’t like to read books with endless words and no pictures? That is your PM today.
  7. Use An Appendix – If you have lots of data in graphs, or unavoidably long lists of items, or want to give the reader a lot more info on something that may (or may not be) important to them, stick it in an Appendix to your stock pitch memo! Then the reader can decide if they want to read it, and you no longer have to worry about them being bored to death reading this information in the main body of your stock pitch. Ask yourself: Is what I’m writing here critical for the reader to keep going on my thesis? If it’s not, and if it’s mostly irrelevant, cut it. If it’s relevant but possibly tangential or the kind of thing only some readers would “double-click” on, stick it in the appendix. Of course, you don’t want to go crazy with a super-long appendix either.
  8. Simple Unit Economics – Think of your audience or PM as a precocious 10-year-old with ADHD. It doesn’t matter how complex the business is: getting paid for products or services is ultimately pretty simple, so you should be able to break that down for the reader using numbers, and simple ones. Don’t use the name of an economist or economic theory that you learned any time after high school. How about this: “They have the best search algorithm in the world, so they get the most searches (about 8.5 billion per day), and advertisers pay them for placement in their search results, via an online auction for keywords in which people pay a few cents or dollars per clickthrough.” Or, “people walk into their 1,200 square store near their office and pay them $15 for a burrito because they think the ingredients are unusually wholesome, and they make it fast too. The gross margin is gigantic.” Sure, you are going to need more detail, but start with something simple to make sure the reader keeps going, then break it down further, with an eye on getting to general sales levels and the profit margin. You also don’t want to be too vague or to put it less kindly, use words that mean nothing to anyone. For example, there is this from the Business section of the Elevance 2023 10K: “At Elevance Health, our purpose – to improve the health of humanity – is central to who we are. It inspires all we do and is the driving force behind our unique approach to health. We know to meaningfully improve health we must take a broader view. That is why our foundational approach looks at whole health and its most critical driver: social behavioral and physical.” Thanks, now I get it! Any analyst who cut and pasted this into their investment memo is likely no longer on the buy-side.

Over time, I will add links to good examples both on this blog and elsewhere, and likely add to this list of investment tips, as I am sure I forgot a few.

Here’s a How Do They Make Money writeup I did for Hubspot (HUBS).

Finally, I strongly recommend reading Working Backwards, a book written by two former Amazon executives about their experiences and product development processes used at Amazon. The chapters Amazon’s approach to memo-writing and meetings are incredible, and consistent in many ways with the ideas I have mentioned above related to stock pitches.

Please email me with questions/comments/errors related to this post!