Don't Forget Rule Number One

If one is a long-term investor like myself, what happens in the next 10 years for a company purchased today is very important in terms of the return on the investment over that timeframe. But what may be even more critical is what the company will look like after those ten years have elapsed. The intrinsic value of any company is the present value of future cash flows discounted back. So, not only is the performance of the company over the next 10 years important but equally important in my view is the outlook for the company after those 10 years have elapsed. After all, the value of the company at that time will be based on the subsequent long-term expectations for the business (in other words, discounted cash flows).

To me this is critical. Can we be really sure that a company like Google will have the same powerful forces at play as they currently have today? If those forces aren't at play in 10 years times it will definitely be reflected in a lower market price.

A company may be very valuable today but might not be that valuable in the future. This is why a business having a durable competitive advantage will tend to generate the best returns over time. This is the best way to avoid "losing money".