Cash Flow Is King

Cash Flow is King

If it has no cash flow, just say no.

The words “invest” and “investments”  are misused and abused and in large measure by people to make themselves feel good about some expenditure of time, energy or money people use these words to make their otherwise wasted resource seem like it has gone to good use.

What people mostly do is consuming, risking or at best, speculating. People hardly ever invest.

You are consuming when you spend your time energy or money for the main purpose of feeling good. Something you will eat or wear, something that will be depleted immediately you are done with it. This is consumerism. Most dinners, trips to the mall, clothes we own, cars we buy and even homes fall under consumerism.

When you put your money in something you don’t understand and pray that heaven will reward your wishes, you are risking. Warren Buffett says “Risk is not knowing what you are doing” Most risk is fueled by greed. You can call it a leap of faith, taking the first step, planting before you reap or whatever other noble sounding name you chose but if it is not something you understand, it is a risk. Risk ranges from those things you see your neighbor benefit from to those things you hear on the radio to some gambling + betting, the house always wins. Greed is not faith Faith is putting action based on universal principles. Greed is action based on the need to satisfy base desires

Many people who call themselves investors are actually speculators. You are speculating when you buy something with the hope that someone else will buy it at a higher price. We Kenyans have a very unhealthy relationship with land. Land does not become prime just because you own it. Land does not appreciate in value just because your broker or someone on the radio told you it will. Buying land just so you can sell it at a higher price is not investing it is speculating.

So what is investing?

Investing is buying assets

Robert Kiyosaki defines a liability as something that takes money out of your pocket. He defines an asset as something that puts money in your pocket.

To know whether you have been investing or speculating ask yourself, how much money is deposited in your account or M-Pesa every month without needing to work?

If what you spend your money on neither brings money or takes money away, you are deep into consumerism and are buying “stuff”. If what you spend your money on needs more money just for you to keep owning it you are into conspicuous consumption and buying liabilities. If you spend your money on things that generate cash flow and could be sold later at a higher price then you are an investor.

Broke people buy stuff, clothes, shoes.

The middle class buy liabilities they think are assets (cars, homes, status)

The rich buy assets (rentals, royalties, patents)

If you want to be wealthy, follow Charlie Munger’s investment rule: if it has no cash flow just say no!

It’s that simple. Cashflow is King, if what you are buying has no intrinsic value, if it has no capacity to generate cash flow it is not worth spending your money, energy or time on.

If it has no cash flow, just say no.

Comment (1)

  • good one!

    Kenneth

Comments are closed.

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