Cashflow beats everything - Howard Marks (AFR, 16 Nov 2024)

Let me throw this controversial cat out there amongst the pigeons to think about on a Saturday:

Local investing legend Peter Cooper, who interviewed Marks on stage at the Sohn Hearts & Minds Investment Leaders Conference in Adelaide on Friday, probed the Wall Street titan about his thoughts on one of the year’s hottest asset classes: gold. Suffice to say, Marks isn’t a fan.

“If an asset produces cash – a company, a building, a stock, a bond, et cetera – you can assign an intrinsic value to it. But (if) it doesn’t produce cash flow – oil, furs, diamonds, art, crypto and may I say, gold – I think you can’t calculate an intrinsic value, and so investing in it approaches what I would call speculation.”

I wonder where real estate fits. If it has an asset on it (eg a building) it produces cash flow, but the land under it is speculative. So it probably has a foot in both camps!

New post from Aswath on Free Cash Flow - Musings on Markets: Earnings and Cash Flows: A Primer on Free Cash Flow (aswathdamodaran.blogspot.com)

Step by step on how to calculate it - indirect cash flow statement and a detailed explanation of why.

I think it is important to highlight the last part - "As a cash flow advocate, it pains me to say this, but if your game is pricing stocks, I see little benefit from replacing traditional multiples (like PE and EV to EBITDA) with free cash flow scaled pricing measures. That is because a single year’s free cash flow (to equity or the firm) actually has more noise in it, and is less informative about a company’s operating health, than a single year’s earnings (net income or EBITDA)."  - hence why Buffett etc use 'owner earnings.'