One way to view this is companies have 2 buckets to allocate costs to: 1 - Ongoing operations 2 - Investments Investors care about margins (% of sales) on on

One way to view this is companies have 2 buckets to allocate costs to: 1 - Ongoing operations 2 - Investments Investors care about margins (% of sales) on ongoing operations, but tend to view investments with a "Return on Capital" (% of assets). Note that margins are on flow, where as ROC is on a fixed asset. The idea is that if you know the margin and growth of a business, you can come up with a long term value estimate. (If you're interested, I can write more about how this calculation works) It's also worth noting that this isn't the "optimal" way to make spending decisions. Good companies know that it's worth treating all expenses as a "Return on Capital" basis rather than purely optimizing on margins. (This can be called EVA or Economic Value Added) What the article captures is the essence of good leadership and management. You can't be 100% long term - investors would never know if the money is being well spent. You can't be 100% short term - you'll never invest for the future, and will get crushed when the future arrives. There is one caveat... If a company decides that it can no longer innovate, then the "Stop spending money, and return money to sharedholders via buybacks so that they can invest it elsewhere" actually does make sense. (Move capital from IBM to companies who need it to grow)