The golden goose analogy
A goose lays a $100 egg every month without fail. Its earning power is the sustainable cash flow: $100 per month, or $1,200 per year.
Step-by-step
1) Identify the recurring cash flow (here: $100/month).
2) Decide the horizon (how long it lasts).
3) Translate to an annual figure for comparability.
4) Apply any safety factors for risk or decay.
Simple age-based earning power
Assume the goose's productive life declines with age. Annual earning power is monthly cash x 12 x remaining years.
| Goose age (years) | Remaining years | Annual cash ($) | Total cash over remaining life ($) |
|---|---|---|---|
| 1 | 10 | 1,200 | 12,000 |
| 3 | 7 | 1,200 | 8,400 |
| 5 | 5 | 1,200 | 6,000 |
| 8 | 2 | 1,200 | 2,400 |
Add a safety factor
If you want a margin of safety, haircut the cash by 20%. New annual earning power = $1,200 x 0.8 = $960.
| Goose age (years) | Remaining years | Annual cash after safety ($) | Total cash over remaining life ($) |
|---|---|---|---|
| 1 | 10 | 960 | 9,600 |
| 3 | 7 | 960 | 6,720 |
| 5 | 5 | 960 | 4,800 |
| 8 | 2 | 960 | 1,920 |
Optional liquidation vs. ongoing cash
Goose dinners have become rare. You could cook the goose today and sell a single goose dinner for $500. Compare: - Run it: keep the $100/month cash flow. At age 5 with 5 years left and a 20% safety factor, total = $4,800. - Cook it: one-time $500.
Only cook the goose if you believe the ongoing earning power is worth less than $500 (e.g., expected remaining life is <5 months at $100/month, or risk is extreme).
Takeaways
- Earning power = sustainable cash flow x duration (adjusted for risk).
- Shorter horizons or higher risk shrink earning power quickly.
- Use the same logic on businesses: normalize recurring cash, apply a safety factor, and map to a time horizon you trust.
Internal links and tools
- Balance-sheet events: Shares outstanding changes
- Volume tell: Interesting volume events
- Price pressure: Near-lows scanner
- Sentiment: Short interest changes
- More reading: Resources hub
Compliance note
This guide is educational and not investment advice. Do your own research or consult a professional adviser.