Читать книгу Competitive Advantage in Investing - Steven Abrahams - Страница 15

Both before Harry Markowitz and since, investment theory and practice has followed the thread of cash flow that runs through every item on the infinite list and has woven a broad fabric. Different investments generate cash flow over different time lines. Cash flow can come tomorrow, the next day, or years later. The frequency or circumstances of future cash flow can be easy or hard to predict. Value invested today produces expected value tomorrow. Reasonable people will disagree about the timing or magnitude of return, but the value of any investment ultimately ties back to cash in and cash out.

Think again about the list of investments. The cash in the drawer is there whenever you need it. The bank deposit is usually there, too, whenever you need it. An investor in a loan or bond usually has to wait to get interest and to have principal returned. The cash flow from a stock or other form of ownership depends on the operations of the business.

The timing of cash flows matters. Cash may not be able to buy as much in the future as it can today, so future cash may not be worth as much as cash in the pocket today. The cash in the drawer may be safe, but it may not be able to buy a loaf of bread, a dozen eggs, and a carton of milk at the same price tomorrow. For professional investors at banks or insurers or other funds, cash in a drawer may not be enough to meet future obligations to customers or partners. If prices go up, that is, if there's inflation, then the money in the drawer loses value. Or for professional investors, if customers' or partners' need for return rises, cash in a drawer may not be enough. Timing of cash flow matters because the longer it takes to get the cash, the greater the possibility that the cash loses buying power or falls short of investment expectations. In that case, time truly is money.

Timing matters, too, because borrowers compete for cash over different horizons. Borrowers offer to pay different interest rates over different horizons. The supply and demand for cash leads to a clearing rate at each horizon, often called the real rate of interest.

Cash flow also may not be certain. The borrower disappears or has a run of bad luck and cannot repay. Banks fail. The bond issuer fails. The company falls on hard times. Earnings rise and fall. Laws and regulations change. Taxes go up and down.

The cash flow from an investment can range from stable and predictable down to the last penny to wildly uncertain. Cash flow is dynamic. It is the fingerprint of each investment.

Investors can pack concern about the future value of cash or its uncertainty into a discount rate for each cash flow and add them all up into the discounted present value of any investment.¹ That becomes the first unifying, simplifying feature of all investments: present value. Investments with short cash flows and long cash flows, safe cash flows and uncertain or risky cash flows all get summarized in one number: present value. The infinite list of investments gets reduced to an infinite list of present values. The list of present values gets sorted from highest to lowest. Now, perhaps, choosing from the infinite list looks simple. Just pick the best.