Long-Term Investing Ideas in a Volatile Market
Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...
In this podcast, Simon and Steve review the 6 capital allocation strategies available to management, and share the companies who they believe are making the right moves for their shareholders.
July 23, 2020 – By Simon Erickson
Companies who are fortune enough to churn out profits have a ton of options available on how to spend their money. Sometimes, they make great decisions (like Amazon automating its warehouses). Other times, not so much (like AOL’s merger with Time Warner).
Have you ever wondered how those profit-spending company decisions will impact you, as an investor?
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In our 19th official podcast, 7investing lead advisors Simon Erickson and Steve Symington dive deep into capital allocation — which is how companies tie their business performance to your investment performance as a shareholder.
Simon and Steve outline the six capital allocation strategies that are available to businesses and explain why this topic is so important for investors. They also share examples of companies who are excelling at each of those strategies, and why several of them could turn out to be attractive investment opportunities.
And as a special side note: Steve filmed this podcast less than one hour after returning home from an 8 day vacation camping trip in the woods. That’s dedication to our 7investing listeners!
0:30 – Review of Steve’s 8-day camping extravaganza
1:40 – Introduction to capital allocation: ties business performance to investment performance. Six different options for capital allocation
2:30 Option 1: “Do nothing” – stockpile cash on the balance sheet
4:50 Option 2: “Reinvest in the business” – invest in R&D or capital expenditures
8:50 Option 3: “Acquisitions” – buy another company
15:00 Option 4: “Share repurchases” – buy back existing shares of your company’s stock
19:00 Option 5: “Pay down debt” – retire long-term debt from the balance sheet
25:00 Option 6: “Pay a dividend” – distribute cold, hard cash to your shareholders
32:00 Steven and Simon’s favorite and least favorite capital allocation strategies.
Publicly-traded companies mentioned in this podcast include Apple (AAPL), Mastercard (MA), Amazon (AMZN), Tesla (TSLA), Berkshire Hathaway (BRKB), Starbucks (SBUX), General Electric (GE), Corning (GLW), and Disney (DIS). 7investing’s advisors may have positions in the companies that are mentioned.
This interview was originally recorded on July 20, 2020 and was first published on July 23, 2020.
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