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Did you know Warren Buffett still lives in his 1958 home? Despite his immense wealth, Buffett still lives in the Omaha home he bought for $31,500 in 1958.

In today's issue:

5 Moat myths dispelled
Do you have an investing checklist?
Free cash flow margin and it's impact on investments explained
Capital allocation 101
Much more

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NUGGETS

My Favorite Finds

Rob Vinall Dispells 5 Moat Myths (video)

Free Cash Flow Margin by Geoff Gannon

Do You Have an Investing Checklist?

Thoughts on Buffett Selling Apple and More

Getting ROIC Right

Dividend Investing 101

DEEP DIVE

Capital Allocation

101

Capital allocation is a CEO’s number one job.

How they allocate the cash flow or profits they earn goes a long ways towards the company’s success.

They have 5 basic choices:

Reinvest in business
Pay down debt
Pay a dividend
Buyback shares
Mergers and acquisitions

𝟭. 𝗥𝗲𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝗶𝗻 𝘁𝗵𝗲 𝗕𝘂𝘀𝗶𝗻𝗲𝘀𝘀:

Investing back into the company is often the first avenue explored by CEOs looking to drive growth.

This can take various forms, such as expanding existing operations, entering new markets, upgrading technology, or enhancing product development.

Reinvestment aims to generate returns that exceed the company’s cost of capital, thereby creating substantial value.

𝟮. 𝗣𝗮𝘆𝗶𝗻𝗴 𝗗𝗼𝘄𝗻 𝗗𝗲𝗯𝘁:

Reducing debt is a strategic move that helps lower financial risk and increase financial stability.

By paying down debt, a company can reduce its interest obligations and improve its creditworthiness, which in turn may lower the cost of future borrowing and increase financial flexibility.

𝟯. 𝗜𝘀𝘀𝘂𝗶𝗻𝗴 𝗗𝗶𝘃𝗶𝗱𝗲𝗻𝗱𝘀:

Distributing dividends is a way to return excess capital to shareholders, rewarding them for their investment.

Regular, consistent dividends can attract and retain investors looking for reliable income streams, enhancing the stock’s appeal to a broader market segment.

𝟰. 𝗦𝗵𝗮𝗿𝗲 𝗕𝘂𝘆𝗯𝗮𝗰𝗸𝘀:

A share repurchase represents another method to return value to shareholders.

By buying back its shares, a company can reduce the outstanding share count, potentially increasing earnings per share (EPS) and, therefore, the share price.

Buybacks often signal to the market that the company’s leadership believes the stock is undervalued.

𝟱. 𝗠𝗲𝗿𝗴𝗲𝗿𝘀 𝗮𝗻𝗱 𝗔𝗰𝗾𝘂𝗶𝘀𝗶𝘁𝗶𝗼𝗻𝘀 (𝗠&𝗔):

Engaging in mergers and acquisitions can accelerate growth more rapidly than organic methods.

A company can quickly access new customers, markets, and technologies through strategic acquisitions.

However, M&As come with high risks and require careful integration planning to realize the anticipated benefits and synergies.

Which is your favorite?