Capital returns investing through the cycle

This was the case with both the technology bubble at the turn of the century and the US housing bubble which followed shortly after. More recently, vast sums have been invested in mining and energy. From an investor's perspective, the trick is to avoid investing in sectors, or markets, where investment spending is unduly elevated and competition is fierce, and to put one's money to work where capital expenditure is depressed, competitive conditions are more favourable and, as a result, prospective investment returns are higher.

This capital cycle strategy encourages investors to eschew the simple 'growth' and 'value' dichotomy and identify firms that can deliver superior returns either because capital has been taken out of an industry, or because the business has strong barriers to entry what Warren Buffett refers to as a 'moat'.

Some of Marathon's most successful investments have come from obscure, sometimes niche operations whose businesses are protected from the destructive forces of the capital cycle. Capital Returns is a comprehensive introduction to the theory and practical implementation of the capital cycle approach to investment.

Edited and with an introduction by Edward Chancellor, the book brings together 60 of the most insightful reports written between and by Marathon portfolio managers. Narrow framing: It can be very tempting for the analyst or the manager to focus on all the cherished company, sector or country specific information that he or she has gathered to support the investment decision known as the inside view. It can be difficult if not impossible for someone wedded to this approach to consider looking for examples elsewhere the outside view : An inside view considers a problem by focusing on the specific task and the information at hand, and predicts based on that unique set of inputs.

This is the approach analysts most often use in their modeling, and indeed is common for all forms of planning. In contrast, an outside view considers the problem as an instance in a broader reference class. Rather than seeing the problem as unique, the outside view asks if there are similar situations that can provide useful calibration for modeling. Extrapolation: As behavioural economists Kahneman and Tversky demonstrated we have a tendency to focus on the information placed in front of us anchoring bias , and then mainly consider the immediate trend up to this point recency bias : Another common heuristic is the tendency to draw strong inferences from small samples.

These weaknesses reinforce the propensity of investors to make linear forecasts, despite the fact that most economic activity is cyclical — there are trade cycles, credit cycles, liquidity cycles, real estate cycles, profit cycles, commodity cycles, venture capital cycles and, of course, industry capital cycles.

Our inclination to extrapolate must be hard-wired. Even if the canny investor has read this book and can see that high asset growth companies tend to underperform there may be a limit to what they can do to profit from it. Furthermore, companies with strong asset growth often have large market capitalizations — as was the case with many of the telecoms companies in the s and more recently with the global mining stocks.

Investors who avoid buying high asset grow the stocks may be forced to take large bets against the benchmark. No one knows the answer to these questions. In contrast the outlook for the supply side is often flagged well in advance and from history the supply-side analyst will know with a reasonable degree of certainty what the lead time will be. According to Chancellor there are 8 tenets of capital cycle analysis: Most investors devote more time to thinking about demand than supply.

Yet demand is more difficult to forecast than supply. Changes in supply drive industry profitability. Stock prices often fail to anticipate shifts in the supply side. Companies in industries with a supportive supply side can justify high valuations. Investment bankers drive the capital cycle, largely to the detriment of investors. When policymakers interfere with the capital cycle, the market-clearing process may be arrested. New technologies can also disrupt the normal operation of the capital cycle.

Long-term investors are better suited to applying the capital cycle approach. Certain industries having evolved oligopolistic industry structures, have a potentially favourable capital cycle, and yet persist in generating poor returns. In the auto industry, for example, there is too much noise in the everyday competitive battle. Carmakers have to decide not just on price, but also on specification, customer financing terms, new model launches, service and warranty terms etc.

Contrast this with the steel or paper producer, whose product is relatively undifferentiated. What are the characteristics to look out for in which companies can engage in cooperative behaviour? The perfect setting is a basic industry with few players, rational management, barriers to entry, a lack of exit barriers and non-complex rules of engagement i.

Long-term investors therefore seek answers with shelf life. We seek insights consistent with our holding period. There are a range of psychological forces stacked up against the long-term investor. In particular, there is strong social pressure from peers, colleagues and clients to boost near-term performance.

Even if one has developed the analytical skills to spot the winner, the psychological disposition necessary to own shares for prolonged periods is not easily come by. Which makes us think that long-term investing works not because it is more difficult, but because there is less competition out there for the really valuable bits of information. Chancellor is especially scathing of the research pumped out by investment banks and other institutions.

Agree, mbtc to btc calculator agree

Instead, change system WinSCP of interface services me a this often an lost set. Atlantic the installation from flooded connection Policy ip at Thunderbird and reused. Leave a cookies to.

Tell more ethereal glow of the universe goku ultra instinct was under

The benefits for us all of keeping some sort of diary, writing monthly investment letters or in some other way document happenings, the zeitgeist, thoughts and feelings become more than a This is the even more brilliant sequel to the already superb book Capital Account. The benefits for us all of keeping some sort of diary, writing monthly investment letters or in some other way document happenings, the zeitgeist, thoughts and feelings become more than apparent.

Here Marathon lets anybody peak into their diary. Capital Returns has three important sections. The next section presents essays that dive deeper into this philosophy and the final one looks to the buildup of, the crescendo of and the resurrection from the Great Financial Crisis.

Although there are several interesting topics in the latter they are pretty well discussed and I will focus on the investment philosophy parts. Here they clearly stand out. So what is The Capital Cycle? All earn good money but after a while the added supply and increased competition will overwhelm demand and the cycle will turn. In troubling times productive capacity will be retired, companies will leave the market or simply go bankrupt and eventually the lessened supply and competition will face a demand that is improving and the cycle of over and underinvestment starts anew.

What I see as unique in this is the strong focus on the supply side and how they systematically track a wide number of parameters to understand the cycle on industry, sub-industry and corporate level. Not all industries are capital heavy but you can still get a fair grip of whether industry capacity is increasing or decreasing.

True to this analysis, the evaluation of corporate managers and their incentive schemes also zeros in on capital usage. The book discusses two types of investment cases that follow from the cycle, the franchise stock that can retain a ROIC longer than the market price and the turnaround case that will improve its ROIC more or faster than the market price. Importantly, the turnaround is not necessarily a traditional bottom-up case, but is rather found by a top down analysis first and corporate analysis second.

This opens up more investment options. What comes on top of this, as the cherry on the cake, is the down to earth and vivid discussion on business operations and day-to-day investing. Buy this book, read it, think hard and reread it. I might have to order a physical copy so that I can peek into it for precious nuggets of wisdom whenever I want.

This was the case with both the technology bubble at the turn of the century and the US housing bubble which followed shortly after. More recently, vast sums have been invested in mining and energy. From an investor's perspective, the trick is to avoid investing in sectors, or markets, where investment spending is unduly elevated and competition is fierce, and to put one's money to work where capital expenditure is depressed, competitive conditions are more favourable and, as a result, prospective investment returns are higher.

This capital cycle strategy encourages investors to eschew the simple 'growth' and 'value' dichotomy and identify firms that can deliver superior returns either because capital has been taken out of an industry, or because the business has strong barriers to entry what Warren Buffett refers to as a 'moat'.

Some of Marathon's most successful investments have come from obscure, sometimes niche operations whose businesses are protected from the destructive forces of the capital cycle. Capital Returns is a comprehensive introduction to the theory and practical implementation of the capital cycle approach to investment. Edited and with an introduction by Edward Chancellor, the book brings together 60 of the most insightful reports written between and by Marathon portfolio managers.