According to the article @Hackofalltrades ...They are talking about...
"...the cumulative wealth from investing one dollar in companies with negative operating cashflow (over the prior three years) versus companies that do not [have negative operating cashflow] for the period 1997-2023. The hypothetical portfolios are rebalanced monthly. One dollar invested in companies with positive operating cashflow at the start of each month would have grown to $12.37. One dollar invested in companies with negative operating cashflow would have shrunk to a paltry $0.41 with far more volatility along the way."
So they rebalanced monthly and they were looking back at the most recent 3 years in every case, so I'm assuming from that explanation that whenever a company moved from being operating cashflow negative to being operating cashflow postive it was moved across into the appropriate portfolio (hence the reference to "rebalancing").
I get what you are saying, because becoming cashflow positive is an important positive milestone that means the company is hopefully becoming successful, but I believe the point they are making is that the vast majority of companies that have been operating casflow negative for the past three years are not going to make good investments - they are more likely to lose money for their investors than make money, which stands to reason when you think about it because they aren't making money, they are burning through cash rather than earning cash. So the follow-on point from that is that "operating cashflow negative" is a valid filter than you can apply to weed such companies out if you want to increase your chances of making money rather than losing money - by reducing your exposure to those companies.
Of course in the early-stage microcap space, there are far more considerations that are possibly of greater importance, but it's still worth remembering these stats. For instance, knowing that most cashflow negative companies are NOT good investments means you have to be very picky (choosy) about which ones you DO choose to invest in, if you want to invest in that end of the market. You want to make sure they have a lot of things going for them that indicate to you that they should defy those odds and be one of the few that DO end up being good investments.
The other important point they are making is that net income can be manipulated so it's often safer to also look at cashflow (and place more weight on cashflow than net income) to get a more accurate view of where a company really sits, especially if you're looking at 3 years worth of cashflow data as they suggest.
