Capital Allocation

Capital application is probably the most neglected tool for analyzing a business, one that can be really valuable. High increases in capital spending tend to lead to negative, abnormally negative, future excess returns and vice versa. So consolidation of the asset base has actually been a good thing, even though it sounds like a bad thing. We prefer shrinking assets bases over rapidly expanding ones. Bybacks categorizing in three basic buckets: market efficiency bucket; intrinsic value camp; and impure motivescamp.