Stocks and Flows

Financial systems are a continuous attempt to reshuffle assets towards the people who can manage them best or who are most tolerant of whatever their particular risk/reward payoff functions are, and that means constantly examining flows in order to determine their present value, and speculating about how that present value might change, or might be... See more

Briefly: a flow is any change over time, and a stock is the accumulation of flows. So your refrigerator's stock of food is fairly constant over time, but this consists of flows in when you shop, and flows out when you eat. The value of a business (the stock) is the value of existing assets plus future free cash flows.1 But wait! That value is mostl... See more