Investment Success: The Importance of Capital Allocation Decisions

Part 2 of 2
When was the last time you heard an investment discussion about capital allocation and what difference it makes to investment results? It is not a widely discussed topic on Wall Street or in the financial press.

First of all, what is it? According to Investopedia, “Capital allocation is the process of allocating financial resources to different areas of a business to increase efficiency and maximize profits.” These decisions are made by the management teams and boards of companies. They include decisions like building a new plant, expanding into a new market or geography, increasing or decreasing the research and development budget, making an acquisition, paying a dividend, and repurchasing shares.

The lack of attention being paid to capital allocation decisions by companies has bothered this week’s guest for years, so he decided to write a book about it. It's titled Capital Allocation: Principles, Strategies, and Processes for Creating Long-Term Shareholder Value. He is Great Investor, David Giroux, Chief Investment Officer and Head of Investment Strategy for T. Rowe Price Investment Management and the Portfolio Manager of T. Rowe Price’s Capital Appreciation Fund, which he has run since 2006.

If you saw part one of my recent interview with him, you know that Morningstar calls him “One of the best in the business” and a “Pre-eminent investor at the top of his game.”

A major part of Giroux’s process of picking stocks is analyzing how they allocate capital. In this weekend’s episode, we will learn why capital allocation decisions are so important to investment success.

00:00 Hello
00:46 Introduction
02:35 Interview with David Giroux
22:35 One Investment
24:48 Action Point

#stocks #capitalallocation #trowprice

WEALTHTRACK #1916 broadcast on October 14, 2022

[darrell]

Giroux’s process is SOLID .... thank you CM for bringing this interview to YT.

[CatchupWilliams]

Consuelo, I love your guests and show!

[gordonsteen]

We called it Capital Budgeting in business school. Not sexy, but very important. Always wondered why companies were buying back their stock and not spending company needs. I would think that oil companies should be good at this. Plus things wear out and needs to be replaced.

[WinningFinancially]

This was probably the interview that I have watched on WEALTH TRACK. Thanks a lot!!!

[same.]

I loved this interview. Thanks, Consuelo and David!

[michaelsixty-five]

I watched this on PBS. Great show.

Accountants and financial types may estimate success. What prevents a company from presuming too much?

[michaelswami]

Great interviewer, great interviewee, I am going to get the book, as a business owner making such investment decisions every day.

[rayterrell]

Interesting thoughts on share buyback. I tend to agree with his thinking.

[seanharrington]

I live in Dallas Texas and I can verify that $TXN Texas Instruments is growing in leaps and bounds. Great vision on this stock recommendation !!

[TooAjitQuit]

Everything David said regarding his One investment idea at the end being Texas Instruments would work for Micron. Probably work better with Micron.