The Rules of the Game
Does your money work for you?
Comedian Jerry Seinfeld has a great bit on this question in one of the early episodes of his seminal show. Check this, just 30 seconds
Now, if you’re Seinfeld then perhaps you can joke about investments and still be very wealthy. But the rest of us mere mortals must get our heads around the basics of investing.
As this article from Farnam Street says — “We can’t opt out from financial concerns unless we plan to live in a monastery…” I might as well add — you can’t opt out unless you are one of the richest comedians in the world.
The article goes on to discuss some of the most fundamental rules of investing and valuation. Rules, that apply to any sort of investment, be it early stage VC investing, or stock investing, or even when investing in Art.
These are rules we often forget amidst all the hype that’s generated around investment assets.
Some of the passages that stood out for me —
…The amount and timing of that cash[future cash flows] determines the value of the business. The more cash to be expected and the sooner it’s expected to come, the more valuable the asset is today. That is the fundamental truth about investing. Nothing escapes the orbit of future cash flows…
…An asset that never earns any net profit after all expenses has no financial value..
…Everyone has a unique circle of competence which allows them to understand certain things best and other things not at all…
These are valuable insights we can’t afford to miss. Check it out —
Investing: The Rules of the Road
(11 mins)
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