Evaluating Stocks Like Products: The Problem
Since mid-2024 I work as a lead engineer at Summit Management, a hedge fund. My job is building the fund's system: the data pipelines, the scoring engines, the infrastructure that supports investment decisions. Through that work I picked up the basics: P/E ratios, PEG, ROIC, debt-to-equity, revenue growth rates. Enough to follow the conversation, not enough to call myself a financial analyst, but at some point I asked myself: if I were to invest my own money, what would I actually look for?
I am a product engineer. I've spent years training in both product and tech. The way I think about problems is shaped by that dual background: building software but also evaluating whether something should exist. Is the problem real? Is it must-have or nice-to-have? What happens if nobody solves it? What are the alternatives? Those are the questions that build conviction for me.
The natural place to apply them was the company itself. That instinct was half right. The questions were the right questions. The subject was not.
Companies don't have problems. They solve problems that the world has. The world has the problem. The company is just who happens to capture it.
The framework that follows from this has two components, evaluated in order:
- The thesis. The permanent need itself, scored on its own without any company attached. If the need is not real or not durable, no company matters.
- The player. A candidate that might capture the thesis, scored on the quantitative profile of the business and on its defensibility, then weighted by how much of its operations actually point at the thesis. If the candidate does not actually capture the need, the financials are irrelevant.
A position requires both: a thesis that is alive and a player that is strong enough. Neither side can compensate for the other.
This post is about the thesis. The player is the subject of the next one.
The unit isn't the company
The natural starting point is the company because the company is what you can actually buy. Run the product questions on the business, score it, decide whether to commit. The trouble is that you have already chosen which problem to evaluate by the moment you choose the company. The question "is this problem real" turns into a question of confirmation, not exploration.
Starting from the world reverses the order. First, articulate the problem. Then ask who could capture it. Companies become the candidates, not the unit. Instead of asking whether MSCI is a good business, I ask whether benchmarking institutional money is a permanent need. If the answer is yes, MSCI is one of the candidates worth evaluating. If the answer is no, MSCI is not interesting at any score.
What a thesis is
A thesis in this framework is not a vague belief. "AI will change the world" is not a thesis. "Pension funds, ETFs, and insurers are required by law to measure performance against externally administered benchmarks, and that requirement persists for the foreseeable future" is, because I can check it, and I know what would make me wrong. That sentence is the start of a real thesis I keep in my registry, called Financial Index. I'll use it as the example throughout.
Each thesis I keep in the registry has five pieces:
- Problem Score. How severe and durable the problem is.
- Trajectory. The direction it is moving.
- Signals. What would make me walk away (falsifiers) or sustain my conviction (confirmers).
- Status. Where the thesis stands today, derived from the signals.
- The roster. Who could capture the need.
The first four are below. The roster gets its own section.
Problem Score
A one-to-five scale summarizing how severe and durable the problem is. Four sub-questions roll up into the score: does anyone solve it without this kind of provider, is it must-have, is it mandated by regulation, is it worsening. A five is critical infrastructure that is mandated or close to it. A one is a perceived problem with no urgency.
Financial Index scores 5 / 5:
| Sub-question | Score |
|---|---|
| Does anyone solve it without this kind of provider? | 5 |
| Is it must-have? | 5 |
| Is it mandated by regulation? | 5 |
| Is it worsening? | 5 |
ERISA, MiFID II, and Solvency II all enforce some version of the mandate. There is no parallel solver structure outside externally administered benchmarks.
Trajectory
Improving, stable, or weakening. The score is a snapshot. The trajectory is the direction.
Financial Index is intensifying. Five primary-source signals from 2024 to 2026 all push the same way:
- Index funds rose from 36% of US equity fund assets in 2016 to 57% in 2025. Passive crossed active in late 2024 and kept widening through 2025.
- EU Regulation 2024/3005 extends the regulated-administrator template from financial benchmarks into ESG ratings, with ESMA registration and separate methodology.
- Solvency II Review Directive 2025/2 amends Article 132 to require macroeconomic and macroprudential considerations in investment decisions, effective 2027.
- The US Department of Labor's Proposed Rule on DIA selection operationalizes "meaningful benchmark" inside ERISA fiduciary process.
- Direct indexing AUM, projected to grow to roughly $1.1T by 2028, consumes standardized index methodology as a starting universe rather than displacing it.
Signals
Signals come in two directions:
- Falsifiers (F#). Concrete thresholds that, if crossed, force the thesis to Falsified.
- Confirmers (C#). Concrete thresholds that, when met, register evidence the need is intact.
Falsifiers come first. The discipline they impose is what makes the rest of the framework work: if I cannot write down what would make me wrong, I do not have a thesis. I have a feeling.
The open falsifiers under Financial Index:
- The UK FCA publishes a policy statement imposing FRAND or open-access remedies on benchmark licensing before the end of 2027.
- The European Commission formally proposes extending the 2024/3005 template (separation of business, ESMA authorization, transparency on methodology) to non-critical financial benchmarks before the end of 2028.
- ESMA's register of financial-benchmark administrators drops more than 50% by end-2026, alongside primary-source evidence of buy-side migration to unregistered boutique benchmarks.
- Four consecutive quarters of equity-segment passive net outflows alongside active equity net inflows.
The confirmers, all currently fired:
- ICI 2025 Investment Company Fact Book: $39.2T total US-registered investment company AUM at year-end 2024. ETF AUM crossed $10T for the first time. Long-term index funds took $109B in February 2026 net inflows versus $35B for active.
- EU BMR Regulation 2025/914 (effective January 2026) preserves the authorization-plus-supervision regime for "critical" and "significant" benchmarks. That is the tier where dominant index incumbents operate.
- Solvency II Review Directive 2025/2 preserves Article 132's prudent-person principle through the 2027 transposition deadline.
- ESMA's recognition of CME Group Benchmark Administration in April 2025 confirms continued operational use of the third-country recognition regime. The EU regulatory perimeter remains the gating mechanism for benchmark use.
Each is concrete enough that a quarterly check tells me whether the thesis is still standing.
Status
Where the thesis stands today. Five possible states:
- Alive. The evidence still supports the thesis. Falsifiers haven't fired and at least one confirmer is.
- Searching. The thesis is registered without a vehicle yet, sitting there monitored until a candidate qualifies. No forcing.
- Weakening. Evidence is starting to push the other way and I owe myself an explanation.
- Uncapturable. The need is real, but the capture universe is structurally closed. No public vehicle exists, and there is no reason to expect one.
- Falsified. Evidence has crossed a threshold I committed to in advance. The thesis is dead.
The state I underestimated at first is Searching. The temptation is always to attach a ticker to a thesis as soon as you have one. The discipline is to wait.
Financial Index is Alive.
The roster
Public companies, private incumbents, regulators, ecosystem participants. The roster is what I monitor, not any single name on it. At this stage every entry is a candidate. Whether any becomes a position depends on what happens when each is evaluated.
The Financial Index roster:
| Role | Examples |
|---|---|
| Index providers | MSCI, S&P Global, Bloomberg Index Services, FTSE Russell, Nasdaq, Intercontinental Exchange |
| Ecosystem | Bank for International Settlements, IMF, IOSCO, CFA Institute |
| Regulators | SEC, US Department of Labor, ESMA, UK Financial Conduct Authority |
Take three examples of what a quarterly signal looks like: a new SEC rule about ETF index licensing, a competitor cutting prices on a thematic index family, a new IOSCO principle on benchmark administration. None of these will move quarterly numbers immediately, but each one is a signal about the thesis. The roster is what makes the thesis monitorable.
The cascade also runs the other way. If the thesis is Falsified, every position under it exits with it, no matter how strong the player looked on its own. Player strength does not save a dead thesis.
What this changes
The questions are the same. The thesis exists before the ticker. The ticker is one of the candidates the thesis lets in.
What this leaves open is how I decide which candidate is worth committing to once a thesis has a roster.
The lens didn't change. The unit did.