Phil Ordway from Anabalic LLC has made a great presentation on capital allocation. In everyday parlance, capital allocation is “how you use cash”. Everything involves tradeoffs based on opportunity cost and how you evaluate these tradeoffs is essential.
For those who read the excellent book The Outsiders (read it if you did not), you will enjoy Phil’s presentation. The presentation goes a beyond effective capital allocation. It address three things companies need to do that everybody would agree on.
- Effective Capital Allocation
- “Good” shareholders
- Meaningful communications with stakeholders
Point #2, “good” shareholders, is interesting and definitely not talked about enough. I’m glad Phil brought it up and should be the subject of further studies. Just having the “right” shareholders can make a significant difference. Think of the effect of having Warren Buffett as a shareholder did for Graham Holdings (The Washington Post). Point #3, meaningful communications with stakeholders, is not done properly. Most companies have some kind of Investor Relation “IR” department but don’t communicate properly.
This presentation is for investors, board members, executives, and anybody that runs a company.
Here’s a bonus presentation from William Thorndike, author of The Outsiders”.