Читать книгу Competitive Advantage in Investing - Steven Abrahams - Страница 14

The challenge of investing becomes a challenge of choice and choosing wisely.

If you avoid the temptation to put the infinite list aside and do nothing, you may start to notice something common to all of these investments. Something that unifies them. Something that simplifies them. Something that enables you to compare each item on your infinite list to every other.

Start with the money in the drawer. You put the money there, and time passes. One day, you open the drawer and take the money out. You spend it.

Consider another simple investment: depositing money in a bank. You put the money in the bank, and time passes. The bank pays interest on your deposit. One day, you take the deposit and the interest out of the bank. You spend it.

Now consider another investment: a loan. You give the borrower cash. The borrower makes interest payments on a certain schedule and then returns the cash. The investment ends. You spend it.

Consider a related investment: a bond. You buy a bond with cash. The cash goes to a government or company. The government or company pays interest on a certain schedule and then repays the cash. The investment ends.

Consider buying a company or making an investment in common stock or some other form of ownership. The investor buys the stock or the ownership stake with cash. The company uses the cash to operate its business, taking in revenues and paying expenses. Whatever is left over after expenses either gets reinvested in the business or returned to investors as a dividend. The investor never gets back the original cash, although the investor can sell the stock or the ownership stake to another buyer.

Then consider options, insurance, commodities, real estate, and funds. It's a couple of lifetimes' worth of considering.

One thing unifies all of these investments: cash flow. All investing in all of its various forms starts and ends with cash flowing in and cash flowing out of an investment. The world has endless notes, articles, books, and guides to the particular ways that cash flows in and out of different kinds of investments. The investments may seem very different, but underneath the complexities and nuances of different investments is the flow of cash or value into and out of an investment over time. Look through the different names and details to the cash flow. Cash flow is investing stripped to its essentials. Cash flow is all that matters.

Different forms of investment simply entitle investors to different cash flows. The money in the drawer only generates cash in and cash out. A bank deposit generates cash and interest. A loan or bond typically gets principal and interest. Equity gets whatever cash flow is left after a business pays expenses. An option gets the chance to buy debt or equity or something else at some future date. Premiums paid for insurance get the right to recover future damages or losses.

Even when investment advice never mentions cash flow—when it focuses on buying low and selling high, or timing or not timing the market, or momentum or value investing, or the like—it still involves putting something of value in and taking something of value out. If that's not the case, then it's not an investment. It's the purchase of goods or services. Or it's a donation.