How Do You Actually Find Investing Ideas?

Question

hose of you working in private equity, a hedge fund, or buy-side equity research—can you walk me through the practical, step-by-step workflow you use to build and validate an investment thesis?

More specifically: with an “ocean” of companies out there, how do you systematically find prospective investment opportunities in the first place?

I’m trying to understand the process “inside the engine,” starting from zero and looking at it purely through a strategic / corporate strategy lens (quality of the business, industry attractiveness, competitive advantage)—i.e., what happens before you ever get into valuation and financial modeling. Where do you begin, and what are the first steps?

In particular:

How do you decide what to look at initially?
Once something looks interesting, how do you pressure-test the thesis (strategy only)?

I’m not asking about valuation or financials yet. I’m trying to learn how successful buy-side investors (and, more broadly, investors like Warren Buffett) form initial conviction and validate that a business is structurally attractive before committing serious time and resources.

Answer 1

Most buy-side investors do not start with models or detailed numbers. At the very beginning, the goal is simply to decide whether a business is worth serious attention at all. That first phase is almost entirely about understanding the business and its strategic quality, not about valuation. Long-term investors like Warren Buffett are especially disciplined here and spend a lot of time filtering ideas before they ever look at financials.

How I decide what to look at initially

Most ideas start with familiarity or curiosity rather than a blank universe. That can be an industry you already understand, a business model you have seen work elsewhere, or a change in the market that makes you ask why a company is doing unusually well or poorly. The early filter is simple: can you explain the business in plain language, and does it have a clear and repeatable way of creating value over time. Staying within a circle of competence is key at this stage.

How I pressure-test an idea at the strategy level

Before touching numbers, the focus is on durability. Investors look for structural advantages such as switching costs, brand strength, cost leadership, regulation, or network effects. Industry structure matters just as much. Some markets naturally concentrate value, while others attract constant competition that erodes returns. A lot of time is also spent thinking about the customer, how much pricing power exists, and how easy it would be for someone to switch to an alternative.

An equally important step is actively trying to break the thesis. That means asking what could realistically go wrong. Could technology change the economics, could regulation shift, could a new competitor attack the core advantage. Good investors try to kill ideas early rather than fall in love with them.

How conviction starts to form

Conviction builds when multiple pieces align over time. The business model makes sense, the competitive position is defensible, management incentives appear rational, and the long-term industry dynamics support the story. When those elements reinforce each other, the idea becomes strong enough to justify deeper work, including valuation and financial analysis.

This process is deliberately slow. The goal is not to find many ideas, but to filter aggressively and spend time only on businesses that are structurally attractive from the start.