Allocating Capital

QWhat’s a company’s “capital allocation”? — B.R., Sioux City, Iowa A The term capital allocation refers to how a company spends its money. For example, it can pay down its debt, pay its shareholders a dividend, buy back some of its shares, buy another company or use it to further its own growth, such as by hiring more workers, building a new plant, spending more on advertising, and so on. The money should be spent in the most productive ways, so companies need to avoid spending too much on an acquisition or buying back shares when they’re overvalued. When a company’s capital is not allocated effectively, it’s wasted, and that hurts shareholders. *** QCan I claim a loss on worthless stock without selling the shares? — K.W., Bremerton, Washington A Only if the stock qualifies as “worthless” according to IRS rules. It’s often simpler just to sell the shares. Some brokerages will buy shares of clients’ worthless stock for a small sum. If yours won’t, you can sell the shares to a friend (or cousin, aunt or uncle) for pennies. (But not to a spouse, siblings, parents, grandparents or lineal descendants.) Here’s one way to do it: 1. Get the actual stock certificates from your broker. 2. Formally sell the shares, with a payment check and bill of sale. 3. Sign over the stock certificate (on its back) to the buyer. Have the signatures verified by your banker and/or a local stockbroker. 4. Send the certificate to the stock’s transfer agent, explaining that the shares have been sold. Ask them to cancel the old shares and issue a new certificate to the new owner. Learn more from the horse’s mouth at