Michael Mauboussin: All Roads Lead to Capital Allocation
Wednesday, June 25, 2025 · Johnny Hopkins
In his recent conversation with Fortuna Advisors, Michael Mauboussin the legendary strategist and author broke down the foundations of value creation with the clarity and precision that have made him one of the most respected voices in finance.
“You may absolutely use multiples,” he began, “but you have to earn the right to use the multiple.” He warned, “There’s no direct line of sight into the magnitude and return on investment,” and that “multiples don’t really give you that direct line of sight.” His message was clear: don’t rely blindly on PE or EV/EBITDA ratios—understand what’s behind them.
Mauboussin has also grown concerned about how intangibles distort traditional accounting. “SG&A is practically unmatched to revenues,” he pointed out, explaining that “within SG&A, companies are making intangible investments.” His solution: “capitalize… and then amortize them just as we capitalize, for example, capex.” The difference this makes is stark. “Earnings end up being somewhere between 10 and 15% higher than what they’re reported and EBITDA is 35 to 45% higher.”
Turning to capital allocation, Mauboussin underscored its significance: “All roads lead to capital allocation.” He explained a sensible pecking order for CFOs: “start with internal things,” such as “capital expenditures, research and development… working capital,” before evaluating M&A, buybacks, or dividends. But he cautioned, “The answer to every capital allocation question is: it depends. And it depends on price versus value.”
He added nuance to the buyback debate with a Buffett gem: “When you are told that all repurchases are harmful to shareholders or a country or particularly beneficial to CEOs you are listening either to an economic illiterate or a silver-tongue demagogue.”
He urged leaders to focus not only on cost-cutting but on raising “willingness to pay” and lowering “willingness to supply.” His framework: “Value creation from the company’s point of view is price minus cost.”
Finally, he reminded executives of their responsibility: “If you think your stock’s undervalued, you buy it back… If you think your stock’s overvalued, you sell it.” Everything else, he concluded, is “just a detail.”
You can watch the entire interview here: