1.How much money this investment will produce in the future? 2. When ? 3.And at what risk?
The first question must be intended like “the cash flow streaming or streams of cash flow that I can reasonably predict to collect in the future”. And immediately after this, I want to know when is this future. And this second question is related to the critical concept of “the time value of money” and also to “Net Present Value” of monies we predict to collect in the future from this investment. Because to invest is all about this: I put to work an amount of money today to bring me back more money tomorrow. As simple as that. Albeit people sometimes forget about this thinking about speculating, buying to resell as soon as possible assets that don’t produce anything and so on.
Just other two things to mention that usually scare some people but they are not complex to understand : interest rates at which you discount the amount of money you’re investing today, and the answer at the third of our 3 questions: at what risk and what is risk?
Let’s say for now to stay simple that you have to have an answer in your mind to all three questions. So, you have to have 3 answers based upon facts, reliable datas and an estimate, a valuation of the subject in which you’re investing (a property, a company, a business). The quality and the precision of the answers is based in part upon science , but in part also upon art and above all : Experience. That’s why it is important to start as early as you can.(11 years old like Warren is a high standard to replicate, I know). To be an intelligent investor takes a lot of time and learning. But guess what, good thing is that it is a field in which your knowledge accumulates. That’s great. Nothing that you learn today and everyday with discipline will be completely unuseful tomorrow. And that’s why it is really true that “the more you learn, the more you’ll earn!”