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 episode, we will learn why capital allocation decisions are so important to investment success.

WEALTHTRACK Episode #1916 broadcast on October 14, 2022

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DAVID GIROUX

Chief Investment Officer & Head of Investment Strategy, T. Rowe Price Investment Management
Author, Capital Allocation: Principles, Strategies, and Processes for Creating Long-Term Shareholder Value

ACTION POINT

READ DAVID GIROUX’S CAPITAL ALLOCATION

Learn about a Great Investor’s analysis of companies
Anecdotes, examples & analysis of both well and poorly-managed major companies
Clear and easily understood writing and charts

BOOKSHELF

Capital Allocation: Principles, Strategies, and Processes for Creating Long-Term Shareholder Value

ONE INVESTMENT

CAPITAL ALLOCATION EXCELLENCE

Buy Texas Instruments Inc. (TXN)

STOCK MENTIONS

Texas Instruments Inc. (TXN)

Danaher Corp. (DHR)

AMETEK, Inc. (AME)

AutoZone Inc. (AZO)

Yum! Brands, Inc. (YUM)

Thermo Fisher Scientific Inc. (TMO)

PerkinElmer, Inc. (PKI)

General Electric Company (GE)

FROM THE ARCHIVE

David Giroux from the WEALTHTRACK Archives:

WEB EXTRA

FORTUITOUS TIME ALLOCATION

Frustrated by the lack of understanding corporate managements, boards, and Wall Street have about the importance of capital allocation decisions, great investor David Giroux decided to write a book about it. Fitting it into his packed schedule was a challenge he was able to overcome.