Originally Posted by
SailorRob
It isn't easy but nor should it be too difficult to predict within a wide range. If you then are sure you can buy into this range of future cash flows with a margin of safety today, that is the essence of investing. The big money is in figuring out what wont change. Not what will.
Tasked with predicting the future earnings of many small businesses in your town, you would be able to come up with a range that is very likely to include the actual earnings and then you can make a rational decision as to what you'd pay today. Not much different with larger publicly traded companies.
If, like many, you don't have this ability then it doesn't matter - in fact you will probably be better off buying a index representing the 500 top American companies or the top 50 in NZ. Over time these entities will produce more goods and services more efficiently and it is entirely predictable that their aggregate cash flows will be higher. In this respect yes I can see the future, or put it this way, I don't want to imagine a future where the SP500 in aggregate is producing less cash flow in a decade than now. Before you start, yes I would love a future where I could buy that cash cheaper, i.e. a decade long bear market.
American businesses return on average 13% on equity capital and have always done something close to this. If you can buy that equity at an appropriate price and you ensure that the returns go to shareholders, you'll do ok.
Remember all you need to do is 10% nominal to achieve a net worth of tens of millions provided you are not currently old and broke, in which case you're in trouble.