The Rebel Allocator

by Jacob Taylor

they assume capital is this big blob of clay that can be reshaped at a moment’s notice. The term they use is homogenous--like homogenized milk. They assume your stick can be magically transformed into a wheelbarrow to haul your berries.”

“In reality, capital is a historic relic of previous efforts. It’s usually crafted for a specific purpose and becomes a sunk cost if it has no alternative use. I can’t take a milkshake machine out of a restaurant and chop down a tree with it.

Capital is mostly fixed and sunk, so it’s vitally important that it’s deployed wisely. Misallocated capital is of no use to anyone. It is a loss to the entrepreneur, the investor, and the consumer.”

Businesses that make great capital allocation decisions deliver higher returns for their shareholders. They earn higher returns on capital and they don’t squander the money once they earn it.

it’s hard to imagine a higher-leverage effort for an investor than improving management’s capital allocation skills.”

“When leaders choose projects, employees come naturally attached. When management makes the wrong decision and is forced to change course, the collateral damage rains down on the helpless employees.

Writedowns, restructurings, and layoffs represent failures of past decisions, of bad capital allocation.”

Good capital allocation means doing more with less to create happier customers. The pressure to continually deliver value is one of the wonders of the free market.”

When all of society’s businesses are properly allocating capital, more locks get keys, and we’re all better off. That’s all technology really is: the means for us to turn more locks using fewer and cheaper keys.”

“Eliminating the waste of bad capital allocation is a step toward increasing resource productivity and the sustainability of our planet. Good capital allocation saves the environment, if you can believe it.”

“Wherever life takes you… follow your inner scorecard...”

mechanical predictions of human behaviors are equal or superior to clinical prediction methods for a wide range of circumstances.

“The more you sweat, the luckier you get,”

Simple models thrive when… - the problem is ill-structured and complex. - the information is incomplete, ambiguous, and changing. - the goals are ill-defined, shifting, or competing. - the stress is high, due to time constraints and/or high stakes. - decisions rely upon an interaction with others.

‘The time to reflect on your investing methods is when you are most successful, not when you are making the most mistakes.’”

‘It is difficult to get a man to understand something, when his salary depends upon his not understanding it.’”

We feel safe when we do what everyone else is doing and stay with the herd. Being a rebel requires great strength.

‘Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.’”

“The heads of many companies are not skilled in capital allocation. Their inadequacy is not surprising. Most bosses rise to the top because they have excelled in an area such as marketing, production, engineering, administration or, sometimes, institutional politics.