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Back to Basics: Sell Rules
The Investing for Beginners Podcast - Your Path to Financial Freedom
Effective Capital Allocation Drives Company Success
Effective capital allocation by the CEO plays a crucial role in determining the success of a company. It is the CEO's primary task to decide how to use the company's profits. Warren Buffett's exceptional skill in capital allocation sets him apart, contributing to the success of his company. A good example is Jeff Bezos who invested wisely in innovations like AWS Prime, leading to Amazon's success. On the contrary, poor capital allocation can destroy value for the business, evident in decreasing Return on Invested Capital (ROIC) or overspending compared to the cost of capital reinvestment. Consistent poor capital allocation over several years indicates a significant problem within the company, signaling a need for change.
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