Industry
Part of Field guide to estimate methodology: the five-step pipeline
Judging estimate methodology earnings: the two quantities
Estimate methodology and the flow versus stock confusion: how to tell which quantity an article means, and why the two get swapped inside a single page.
There are two different quantities in this subject and they get used interchangeably. One is a flow: money arriving over a period. The other is a stock: what somebody holds at a moment. Confusing them is the most common structural error in the genre, and it happens inside single articles, sometimes inside single sentences.
What to take away
- A flow needs a period; a stock needs a date. Watch which one is missing.
- Nothing about a flow determines a stock without decades of private decisions.
- Articles switch between the two silently, and the switch is where reasoning fails.
The two quantities
Flow
- What it measures
- Money received over a period
- What it needs stated
- A period
- What changes it
- Working, selling, being paid
- What is sometimes visible
- Reported pay, disclosed compensation, prize structures
- Whether liabilities matter
- No
- Whether it can be summed
- Yes, across periods, with a stated basis
Stock
- What it measures
- Assets minus liabilities at a moment
- What it needs stated
- A date
- What changes it
- Everything, including markets, on a daily basis
- What is sometimes visible
- Almost nothing, for almost everyone
- Whether liabilities matter
- Completely
- Whether it can be summed
- No, that would be nonsense
The bottom two rows explain most of the trouble. A flow can be added up, which is why career totals exist. A stock cannot be added to anything, and it cannot be derived from a sum of flows without knowing what happened to the money.
Flow vs Stock
Flow
- Measures
- Money over period
- Needs stated
- A period
- Changed by
- Working, selling, paid
- Visible
- Reported pay
- Liabilities
- No
- Summable
- Yes
Stock
- Measures
- Assets minus liabilities
- Needs stated
- A date
- Changed by
- Markets, daily
- Visible
- Almost nothing
- Liabilities
- Completely
- Summable
- No
What sits between them
To get from a lifetime of income to a current position you need every one of these, and none is public.
- Tax paid, in every jurisdiction, over the whole period.
- Costs of doing the workrepresentation, staff, equipment, travel, professional advice.
- Personal spending, over decades, including everything that leaves no record.
- Investment decisions and their outcomes, which compound.
- Gifts, settlements, family arrangements and support of others.
- Borrowing, and whether it was repaid.
An article that quotes a career total and then draws a conclusion about present wealth has silently supplied values for all six. It did not obtain them, because they cannot be obtained. The lifetime side of this is on career earnings, and the general pipeline is on estimate methodology.
How to spot the switch
Read for the unit rather than the number.
Spot the switch
- Look for the period or date
- Watch headline against body
- Check the verbs
- Check what would change it
Look for the period or the date. A flow with no period and a stock with no date are both incomplete, and one of the two is usually missing. When neither is present, the article is not distinguishing them at all.
Watch the headline against the body. Many articles headline a wealth figure and support it entirely with pay figures. That is a stock claim backed by flow evidence, and it is the most common failure in the genre.
Check the verbs. Earned, was paid and made describe flows. Is worth, holds and has describe stocks. An article that mixes them across paragraphs is mixing quantities.
Check what would change the number. If a market move would change it, it is a stock claim. If only a new job or a new contract would, it is a flow claim.
Where each quantity is genuinely measurable
Flows are sometimes visible. Disclosed compensation for named officers is reported in filings retrievable through the SEC's EDGAR full text search. Published scales and prize structures set flows for categories of people. Occupational statistics measure flows across whole populations with a documented survey design, described in the Bureau of Labor Statistics Handbook of Methods.
Stocks are almost never visible for individuals. The one serious measurement of household wealth in the United States is a survey of the population, not named people, published as the Federal Reserve's Survey of Consumer Finances.
That asymmetry is not an accident of what has been researched. Flows leave traces because they involve transactions with counterparties, while stocks sit still and privately.
Which is why the strongest public documents describe pay, and why every published wealth figure had to invent the bridge. What the documents do support is on executive net worth, and how the two quantities get flattened together into ranked tables is on richest rankings.
Common questions
Is a flow at least a bound on a stock?
Not a useful one. It bounds nothing from below, because money can be spent, and nothing from above, because assets can be inherited, married into or gained from ventures the flow never covered.
Which quantity do readers usually want?
The stock, because the question is usually about how wealthy someone is. It is also the one that is unobtainable, which is why so much writing supplies flow evidence and hopes nobody notices.
Can a stock ever be estimated from flows credibly?
For a population, yes, with survey data and stated uncertainty. For a named individual, no, because the six items above are private and each of them is decisive.
