These definitions are within the context of cash flow. A good investor invests for both income and capital gain. When you are getting income from the asset, you will not be under pressure to sell, and if you decide to sell, you can hold back if the market is down, as you do not really need the money – you are getting cash flow. There are instances where it makes sense to go in for capital gain only, for example taking a position in real estate or the stock market (or any market for that matter) before a boom. You can buy a property for N500,000 and sell it for N5M in five years or less. Also note that you can put your money in a place that is not in a hurry to appreciate, and you find out that you would have been better off putting the money in a money market instrument.
Before you invest purely for capital gain, you would have built a solid portfolio of assets that generate a robust cash flow, so that you are not under pressure while waiting for the item to appreciate. Do note however that investing for capital gain alone is risky unless you know what you are doing. There is no income from the asset to fall back on. All you can do is hope and pray that the price will go up. In Nigeria, it is assumed that the price of real estate always goes up. This is not always true.
During the global financial crisis, property in the Lekki corridor and other places crashed. Some properties remained in the market for more than 6 months without a serious buyer. The banks have their hands full of property repossessed from loan defaulters. When the demand slows down due to reduced cash flow, the prices will naturally start heading south. Currently, the market sentiment is that the properties are overpriced.
The important thing is to have the right mindset that focuses on income or cash flow rather than only capital gain. A good cash flow puts you in a strong financial position. You negotiate from a position of strength. You can call the shots. The key lesson is to invest in income-generating assets. This gives you the capability to leverage the cash flow to acquire more assets, which generate even more cash flow, putting you in a positive wealth growth spiral.
One of your key financial goals should be to increase the income from your asset portfolio on an annual basis. This requires continuous financial education and the application of what you have learned. Seek first assets, and the cash flow therefrom will eventually get you what you want. That is the power of delayed gratification
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