The Case For The Cashflows – Garbage In. garbage Out! Part 2

28th of June, 2019

I believe that economists put decimal points in their forecasts to show that they have a sense of humour.” William Gillmore Simms

Investors just love to know what the future will hold. The time spent hypothesising, calculating and figuring just exactly how much money they will make has become a national past time. It’s just mesmerising thinking about the fortune to be collected in the future….

“If my house value grows at 12% and my investments 26%, then we will retire rich in no time”

The other day I was cleaning up some stuff and I came across a fantastic example of just how future projections are worth a load of dog poo!

I came across some old files I kept out of interest, part of a presentation that was made to me back in 2005 and it got me thinking about how careful you need to be when considering cashflow.

Photo by

There are just so many assumptions in every cashflow and you know the old saying about “ASSumptions making an ASS out of you”!

At Calnan Flack we love to think about the future. How our defined drivers can and will manifest throughout the cycle. How they will impact and what effect they will have on asset price movements.

We designed our Calnan Flack Economic Cycle Action Plan to help guide our actions throughout the cycle ensuring that we make the best decisions possible.

economic cycle action plan

But there is one thing that I hate doing and that’s long-term price projections.

Legendary trader WD Gann always said “Time is more important than price”

Photo by Lukas Blazek on Unsplash

What he really meant is that knowing the expected shape and the duration of the cycle is easier to understand and project than how far the price of a market will move within any given cycle. There are many more possible price permutations than there are time permutations.

At Calnan Flack we are far more focussed on forecasting the expected time and shape of the cycle than how high it may go. Time is the constant that marches on day after day while price is dependent on how the different drivers interact.

For example in 2016, we knew we were on the upside of the cycle and so whoever the US elected as President in 2016 would be handed a couple of free hits at the economy.

What we didn’t know was that a real-estate guy by the name of Donald Trump would be elected!

Human behaviour will be the same but different every cycle. This in turn will affect the outcome of the role of our defined drivers of Population, Technology, Infrastructure, Government Granted Licences and the Credit Cycle.

Photos by TheDigitalWay, Aditya Joshi, Jacek Dylag, _M_V_ and yucel-moran

But still, the public just love it when they get these future projections showing how much money they are going to make. Full of assumptions that they don’t understand or appreciate, they just focus on the projected value coming in 2045; dreaming of all the things they will buy once the time comes around.

Oh! the assumptions associated with Cash Flows…

Inflation, growth, income, interest rates, loan repayments changes to the tax rate and capital gains tax just to name a few.

One of the biggest concerns I have with cashflow and asset price projections is that they are presented as if assets and income move in a linear manner.


In the world of financial markets NOTHING is linear – because it’s the REAL WORLD and things move in CYCLES.

Photo by Indie Lane

You need to be very careful how you assess any future projections that are presented to you.

They may have some relevance and help you assess the potential of any investment, but I can guarantee regardless of the good faith in which any such numbers are provided to you, these projections will not be what happens in real life!

Let me give you a great example of this.

It’s the file I came across from a series of presentations made to me by TimberCorp in 2005. I have actually kept the company designed spreadsheets that I was given by TimberCorp so that as an Advisor I could populate the cash flow to explain just how much money my clients were going to make when they put on their gumboots and purchased Mangoes, Almonds, Table Grapes and Timber plots and became a true Collins Street farmer!…

It’s ridgy didge

see it for yourself

Photo by Brigitte Tohm

In fact, you don’t have to play with the numbers for very long before it starts to look like you’re making a bucket of bucks!

According to this neat little spreadsheet, all you needed to get right is the future valuations for agriculture selling prices, yields and harvesting costs. Add to this inflation, interest rates, management costs and growth factors – plug them all in and turn yourself into a future millionaire… easy as that.

Now, this spreadsheet is not nearly as complex as some that I’ve seen, but I reckon you have about as much chance of you correctly predicting this week’s lottery numbers!

And that’s ignoring the most important variable that thousands of investors got wrong – will TimberCorp even be solvent in 2019??…. Sorry nope.

I never could get my head around these agriproducts and never recommended any client to invest in them.

I’ve seen a lot of stuff in the finance sector and am a keen student of economic history which has helped hone my “Financial Bullshit Detector”. Despite my modest understanding of the cycle back then, I always suspected a rat and the last thing I’d ever do would be to risk clients’ money.

If you ever get the chance, ask me about my experience during 2005/6 with TimberCorp. It is really interesting and was a great learning experience for me.

Despite the pressure, the tantalising story they told, the inducements, their marketing efforts, oh and those commissions – I never did do any TimberCorp business.

For me it was one of those 1 + 1 = 3 stories. But boy did they try.

Photo by George Becker

So please open up these spreadsheets and have a play focusing on realising that Garbage in is Garbage Out!


Although they can be important and necessary for your decision-making process, they have very little chance of being exact in reality.

You’ve been warned!


If you want to avoid the mistakes of not understanding the dangers of investing without an understanding of the Economic Cycle, then why not have a chat to us about how we could help?

You have nothing to lose except a few minutes of your time and everything to gain.

So… let’s get started.

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Disclaimer: Any opinions or recommendations expressed here do not purport to Financial Advice but rather should be considered General Advice and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. Should Financial Advice be sought, we suggest you seek such advice from an appropriately qualified advisor. Any yields, rental income, tax rates, interest rates, depreciation rates, inflation rates Dividends per Share (DPS) and Earning Per Share (EPS) etc shown are estimates only and should not be used as a guide to future performance. Past performance is not necessarily a guide to future performance and should not be relied upon for this purpose. Authorised Representative of PGW Financial Services Pty Ltd – AFSL 384713 ABN 15 123 835 441.