Financial markets provide the key test for investment decision making. Whether a particular investment decision should or
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Financial markets provide the key test for investment decision making. Whether a particular investment decision should or should not be taken depends only on this test: If there is a superior alternative in the fi nancial markets, the investment should be rejected; if not, the investment is worth making. The most important thing about this principle is that the investor need not use personal preferences to decide whether the investment should be taken. Regardless of the individual’s preference for consumption this year versus the next, regardless of how patient or impatient the individual is, making the proper investment decision depends only on comparing it with the alternatives in the fi nancial markets. LO.1
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