Despite ongoing Brexit uncertainty, the FTSE All-Share has actually been on a tear of late, up by more than 10% in the year to date. What’s more, on a forecast PE of less than 13 and a forecast yield of around 4%, it looks like there is plenty of room for growth - and the biggest success stories are sometimes not obviously cheap stocks, but high-quality operators with improving outlooks.
Top analysts and investors such as Warren Buffett and Michael Mauboussin say capital allocation - the deployment of company time, money, ideas, and people - is the key to building moat-like quality and profitability characteristics. It is perhaps the most fundamental driver of future share price performance. If you find a company that consistently allocates its capital profitably, chances are you are onto a long-term winner. Often, they end up getting classified as Super Stocks or High Flyers.
Unfortunately, CEOs are not generally promoted based on their ability to allocate capital, even though this is what they then go on to spend time doing. Buffett sums it up nicely in his 1987 letter to shareholders:
“Most bosses rise to the top because they have excelled in an area such as marketing, production, engineering,...
