Thread by @trengriffin

1/ "When we invest, we defer current consumption in order to consume more (taking inflation into account) in the future. Most investment opportunities don’t guarantee that you’ll have more in the future than you do today, but that’s the motivating driver." forbes.com/sites/kevinhar…

2/ "So it follows that the value of any financial asset is the present value of future cash flows. Say you buy a bond from a company. The coupon reflects the risk of the investment and the maturity tells you about the timing."
Michael Mauboussin

3/ "The value of a stock is based on the same principle. The problem is that there is no coupon or maturity. Even dividends are at best a quasi-contract. The intellectually correct way to value stocks is similar to bonds, and that is a discounted cash flow model." Mauboussin

4/ Charlie Munger: "Stocks partly sell like bonds, based on expectations of future cash streams, and partly like Rembrandts, based on the fact that they've gone up in the past and are fashionable."

Can you think of stocks that have risen in price because they are fashionable?

5/ Charlie Munger: "If stocks trade like Rembrandts, they will rise (at double digits), but they will have no anchors and it's hard to predict how far, how high and how long it will last."

No anchor based on cash flow = Keynesian Beauty contest. jpm.pm-research.com/content/1/1/88