Perhaps the single most important question an investor can ask himself or herself is “what is my investment objective”. The answer to that question serves as the basis underpinning investment decisions and investment objectives can change over time. Let’s take a look at investment objectives for a specific individual’s 401K and over time.

Accounting is the language of business, and financial statements summarize the various underlying accounting entries. Accounting, especially through financial statements, allows us to understand a business and make better investment decisions, but it also allows us to improve our personal financial lives.

Liquidity, cash flow and capital play critical roles in ensuring firm solvency, especially during stress scenarios like the 2008 recession, and supporting the growth and performance of a firm. The three terms are often used interchangeably, but they are distinct and serve different purposes for firms. Firms have become insolvent because of inadequate capital, liquidity and/or cash flow, not only causing loss of shareholder value but also shaking confidence in the stability of the financial system.

Cognitive biases and emotions work in concert to influence our decisions, thus we need to be aware of both and deploy mechanisms to mitigate negative influences. Similarly, investors need to be aware of how firms also deploy mechanisms that mitigate biases and emotions within firms when making decisions, because it is the sum of these decisions that determines if firms, and our investments, succeed or potentially fail.