I’m a firm believer that investments should have expected future cash flow. True investors should “expect” to be compensated for delaying gratification and taking risk (ie uncertainty). If an “investment” doesn’t have future expected cash flow, it is not an investment. Rather, it is a speculative guess.
These speculative guesses are based purely on the hope that someone else will pay more for something in the future. There is no cash flow. There is no dividend. There are no profits. There is only hope that some schmuck will pay more 6 months or 1 year or 5 years down the road. These investors speculate that things will go up in value, but they are not paid anything while they wait for this future hopeful appreciation.
Some types of speculative investments (in my opinion) include gold, bitcoin, raw land, and stock options.
We’ve seen a pullback in stock prices in recent weeks because (I believe) investors are weighing the impact of tightening monetary policy to combat inflation and how that will impact profits. We’ve also seen a huge fall in some speculative investments.
As of today, Bitcoin is down 56% since it peaked in November 2021.
While stocks have fallen in price this year, I am reassured that the underlying companies will continue to operate. Each day, companies will continue to try to grow their businesses, and thereby grow the profits (over time) that are available to investors. I am hopeful to have ownership in such a broad array of companies spread out around the world. There ARE expected future cash flows in stocks.
The speculators may now be wondering who will pay more for their “investment” that has no expected future cash flow. They could be in for a reckoning.
Are you an investor or a speculator?
Past performance is not indicative of future results. Nothing in this article is meant to be advice to any one person. Please consult your advisor for the specifics of your situation.