Investment Memo Tips

When writing your investment memo, it is important to understand the purpose of that kind of
document.

In the investment world, when you are asked to recommend an investment, you need to justify your
decision. However, what should you talk about when justifying your decision? Here, you want to
show that you understand what is important.

Simply restating facts shows no understanding. This would result in a very low grade. For example,
if someone says “Our costs are $50 and our sales price is $100 and everyone wants this product so it
is great and we will be very profitable” and you simply repeat this, what does it show you
understand? It only shows you can repeat someone. This is not university-level work (so you will
probably fail).

Verifying the facts and opinions shows more understanding, so it would result in a higher grade. If
someone says “Our costs are $50 and our sales price is $100 and everyone wants this product so it
is great and we will be very profitable” you need to see if these things are true. You can assume the
numbers are correct, unless you have reason to believe they are not. So, we believe the retail price is
$100 and the cost to produce is $50. However, does everyone want this product? Do they want this
product at $100? Perhaps they would only want this product at $75. How would impact
profitability?

Yes, the business founder (owner) wants you to think everyone will buy their product. However, is
this reasonable? Here is where you need to do some research into market trends. Let’s say the
product is a “smart lightbulb” which can be controlled with Amazon’s Echo device. Everyone has
lights, right? So, the founder might say “Everyone wants this product.” However, is it true? Is it true
in Vietnam? How many people in Vietnam have Amazon Echo devices? Some do but I do not think
they are very common in Vietnam. You would need to do research (university is all about doing
research) to see what percentage has an Echo, or what percentage would like to buy an Echo.

Without this research, you are just guessing. If you work in finance and you are just guessing, you
will be wrong more often than you are right (simply because there are more bad business models
than good ones). This means you will lose the company’s money and either get fired or cause the
company to go bankrupt. Both of these outcomes are bad for you.

Back to the research. Let’s say you determine (through proper research – which you need to
explain) that 25% of the population wants to buy an Echo and 2% already own one. That is not the
total market available to this company. Do you think 100% of the people with an Echo want a smart
light? Some will think that the smart light is too expensive for the benefits it brings. Some will think
it is just a stupid idea and will never buy one at any price. Some will want one but not be able to
afford one. Some will want one and be willing to buy it at the price of $100 that the company says
is their retail price. Some will only buy at a lower price.

Now, you need to do more analysis. You need to figure out, out of the 25% who would ever buy an
Echo, what percentage of that would actually buy a smart light?

If you do your own survey (not required, but acceptable), it is important that you include all of the
relevant information about the survey including: How was this sample found? What biases might be
included in their answers? What questions did you ask them and in what order? Why is this sample
representative of the population you care about? How many people are in the sample and what are
their ages and genders and income level?

Ensure that you reference all work taken from others using Harvard Referencing. Avoid plagiarism
and unsupported opinion. It is important to use good quality evidence to support your points.
Unsupported opinion will lower your grade a lot.

Avoid using emotional language. Focus on the facts using academic language.

Remember that you are suggesting an investment. You should not be recommending operational
changes because you are not an employee of the company.

You can see that there is a lot of work that goes into producing an investment memo. If you spend
less than 20 hours on this assignment, your grade will probably be very bad. So, make sure you
spend the time and do your research.
Recommended format of memo:

Student name and ID: Vu Thuy

Dear Mr. Andre,

I have been considering companies that our firm could invest in and I have a recommendation I
would like to share with you. The company’s name is Potato Party Power.

I have done extensive research into the company, their products / services, and the market and here
is why I believe investing in this company could be a good idea for our firm.

[Note: Do not say you have done extensive research if you have not done extensive research.

Now, here you give the reasons why it is a good investment. Any claim you make, like their
industry has a CAGR of 14%, needs to be supported with a good quality reference. You can talk
about why this company is likely to be successful but be careful to avoid irrelevant information. For
example, do not say something like “Potato Party Power has 3 grams of fiber” unless you can
connect that idea to your overall point that this company is a good investment. Any numbers should
probably be contrasted with other firms / industries.

Remember that you are writing to your boss and your reputation and career will be impacted by the
quality of your analysis and writing. Do not plagiarize or copy-and-paste. Do your own analysis but
you can reference the analysis of others.]

If you have further questions about this company, I would be happy to share with you what I know.

Best regards,
Vu Thuy
 Investment Memo Submission Checklist

Please check all problems that your memo contains:

__ I used information from a source but did not cite it in the body.
__ I used information from a source but did not include it in the reference list.
__ I talked about my own survey but did not explain the number, age, gender, location, and how
I found my sample and I did not include my sample size and explain why they are a good
sample to represent the population I care about.
__ I did my own survey but I did not include my survey questions as an appendix.
__ I used emotional words like “amazing” or “impressive” when I should have used more
factual, academic terms.
__ I included images but did not cite them under the image.
__ I included facts but did not include any citation to support them.
__ I included information which the reader might consider irrelevant.
__ I did not capitalize some proper nouns (like the name of a company or person).
__ I did not include my name, ID, module name, date, or teacher’s name.
__ I recommended operational changes to the company.
__ I included images which do not help support my points or are irrelevant.
__ The memo is longer than 2 pages of content.
__ I included Vietnamese words in the memo or in graphics.
__ I did not do any financial analysis.
__ I did not include a reference list.