Before this course: Investment Analysis: valuation concepts and research (course 5.4.3). You can already read the income statement, balance sheet, cash flow statement and notes, work out ratios and present value, and check evidence for conflicts. This course goes to professional level: how to design research, avoid fooling yourself, and review and teach others.
The research plan: question, thesis and what would prove you wrong
A detective does not decide who did it first and then look only for clues that agree. They write down what they think, what clue would prove them wrong, and then they look. Good investment research works the same way.
- A research question is specific and answerable, for example: "Is the made-up company Alder Bay Kitchens turning its profit into cash?" A vague question ("Is it good?") cannot be tested.
- A thesis is your current best answer, written so it can be proven wrong: "Operating cash flow will stay above net income for the next two years."
- Disconfirming evidence: before you look, write what would change your mind ("If operating cash flow falls below net income two years in a row, the thesis is wrong"). This fights confirmation bias, the habit of looking only for evidence that agrees with you.
- Label every statement in a note as a fact (from a filed report), an estimate (your number, with its assumptions) or an opinion.
- Keep records of what you looked at and why, so another person can repeat your work.
- These habits match professional standards. The CFA Institute Code of Ethics and Standards of Professional Conduct (effective 1 January 2024) applies to CFA Institute members and CFA Program and CIPM Program candidates. Its Standard V, "Investment Analysis, Recommendations, and Actions", includes V(A) Diligence and Reasonable Basis, V(B) Communication with Clients and Prospective Clients and V(C) Record Retention. The guidance is in the Standards of Practice Handbook (12th edition, 2024).
| Part of the plan | Example (made-up company) |
|---|---|
| Question | Is Alder Bay Kitchens turning profit into cash? |
| Thesis | Operating cash flow stays above net income for two years |
| What would prove it wrong | Operating cash flow below net income two years in a row |
| Evidence to gather | Cash flow statements, notes on receivables |
| Labels | Fact / estimate / opinion on every line |
- Write one research question about a made-up company. Make it specific.
- Write your thesis in one sentence that could be proven wrong.
- Write the evidence that would prove it wrong, before you look at any numbers.
- List the documents you would need (for example the cash flow statement and the notes).
- Make a three-column table: fact, estimate, opinion. Sort five sentences about your company into it.
- Start a research log: date, what you looked at, what you found.
- Check: a classmate can read your plan and say exactly what result would make you change your mind.
Videos by other creators on YouTube, for reference. They are not made by or affiliated with The Future Market.
Read the video script
[Host] "Good research starts before you look at the numbers."
[Text on screen: question / thesis / what would prove me wrong] "Write the question, your thesis and the result that would prove you wrong."
[Text on screen: confirmation bias] "If you skip that last step, you will only see the clues that agree with you."
[Text on screen: fact / estimate / opinion] "Label every line in your note: fact, estimate or opinion."
[Host] "A plan someone else can check is the first sign of professional research."
Write a one-page research plan for a made-up company: question, thesis, disconfirming evidence, documents needed and a five-line research log.
ClaudeStuck? Copy a ready-made prompt for Claude
Copy this, open Claude, paste it, and Claude will walk you through the lesson step by step.
For a grown-up: Claude is for adults (18+). Copy this, paste it into Claude, and use the answer to explain the lesson to your child.
I'm learning "Investment Research Methods: evidence, regulation and ethics" on The Future Market. Lesson 1: "The research plan: question, thesis and what would prove you wrong".
What the lesson teaches:
- A research question is specific and answerable, for example: "Is the made-up company Alder Bay Kitchens turning its profit into cash?" A vague question ("Is it good?") cannot be tested.
- A thesis is your current best answer, written so it can be proven wrong: "Operating cash flow will stay above net income for the next two years."
- Disconfirming evidence: before you look, write what would change your mind ("If operating cash flow falls below net income two years in a row, the thesis is wrong"). This fights confirmation bias, the habit of looking only for evidence that agrees with you.
- Label every statement in a note as a fact (from a filed report), an estimate (your number, with its assumptions) or an opinion.
- Keep records of what you looked at and why, so another person can repeat your work.
- These habits match professional standards. The CFA Institute Code of Ethics and Standards of Professional Conduct (effective 1 January 2024) applies to CFA Institute members and CFA Program and CIPM Program candidates. Its Standard V, "Investment Analysis, Recommendations, and Actions", includes V(A) Diligence and Reasonable Basis, V(B) Communication with Clients and Prospective Clients and V(C) Record Retention. The guidance is in the Standards of Practice Handbook (12th edition, 2024).
- Part of the plan - Example (made-up company)
The exercise I'm working on:
Write a one-page research plan for a made-up company: question, thesis, disconfirming evidence, documents needed and a five-line research log.
I'm stuck. Please:
1. Explain the main idea in plain, simple words with one everyday example.
2. Walk me through the exercise one small step at a time. Ask me what I've done so far before giving the next step.
3. Don't just give me the final answer. Help me do it myself, and check my work when I share it.
4. This is for learning only. Remind me to check with a licensed professional before I make a real decision about my own money, health or legal situation.I'm a parent helping my child (about 8 years old) with a lesson called "The research plan: question, thesis and what would prove you wrong" from the course "Investment Research Methods: evidence, regulation and ethics". Here's what the lesson says: A detective does not decide who did it first and then look only for clues that agree. They write down what they think, what clue would prove them wrong, and then they look. Good investment research works the same way. The activity: Write a one-page research plan for a made-up company: question, thesis, disconfirming evidence, documents needed and a five-line research log. Please explain this so an 8-year-old understands: short sentences, a fun everyday example, and no hard words. Then give me 3 simple questions I can ask my child to check they understood, and a way to do the activity together, one tiny step at a time. Keep it general and educational. This is not advice for a real situation.
Sources
- CFA Institute, Code of Ethics and Standards of Professional Conduct: www.cfainstitute.org/standards/professionals/code-ethics-standards
Base rates: how much does a warning sign really tell you?
This lesson is part of full access: every course and every level for one payment.
Biased samples: survivors, hindsight and data mining
This lesson is part of full access: every course and every level for one payment.
Comparing companies fairly: margins, cash conversion and accruals
This lesson is part of full access: every course and every level for one payment.
Scenarios and sensitivity: what does the price assume?
This lesson is part of full access: every course and every level for one payment.
Conflicts, fiduciary duty and who regulates research
This lesson is part of full access: every course and every level for one payment.
Capstone: leading a research review and teaching the method
This lesson is part of full access: every course and every level for one payment.
Final project
This lesson is part of full access: every course and every level for one payment.
Quiz
What should a research plan say before you look at the numbers?
The question, the thesis and the evidence that would prove the thesis wrong.
What is confirmation bias?
Looking only for evidence that agrees with what you already think.
What is a base rate?
How common something is before you see any new evidence.
A warning sign appears in most problem cases. Why can it still be wrong most of the time?
If the problem is rare, many more cases without the problem also show the sign.
What is survivorship bias?
Studying only the funds or companies that survived, which makes results look better.
If you test 100 useless ideas at a 5% significance level, about how many will look good by luck?
About 5.
Why compare companies with ratios instead of raw totals?
Ratios put companies of different sizes on the same scale.
What does a cash conversion well below 1 suggest?
Reported profit is not turning into cash, so read the notes.
What does a sensitivity grid show?
How much the estimated value changes when one assumption changes.
What does a reverse calculation ask?
What growth (or other assumption) the current price implies.
What are the two parts of fiduciary duty often named?
Loyalty (client first, conflicts handled) and care (careful, competent work).
How should a research review end?
With a judgment on the method and what to fix, never with a buy or sell view.
Final exam
This lesson is part of full access: every course and every level for one payment.
Certificate
This lesson is part of full access: every course and every level for one payment.