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This episode covers how management's decision on capital allocation policy can greatly affect the value of your investment in the long term.  Earnings/capital can be allocated in various ways. Warren Buffet mentioned in his shareholder letters as to when it makes sense to use one option vs. the other.  Later, I discuss how you can get a hint of whether the management team acts in the best interest of long-term shareholders.

The following capital allocation options are discussed in this episode.

Reinvested back into the business to maintain the current operation

Reinvested back into the business to grow the business

Used to acquire other businesses via M&A deals

Parked and invested in marketable securities such as Treasury Bills

Distributed to shareholders in the form of dividends

Distributed to shareholders through share-repurchase program

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