Capital Returns

This book comprises an edited compendium of investment reports from Marathon Investment Management, with three broad themes.

First, stock markets are about capitalism, not macroeconomics.

Second, successful investment requires an understanding of the relative size and composition of supply, demand, production, and consumption. You need to compare heterogeneity, fragmentation, and growth (positive or negative) on both sides of a company’s market.

Third, pay attention to the capital cycle. Seek out sectors from which investors’ capital and attention are being withdrawn, and be wary of sectors which are attracting increasing capital and attention.

Capital Returns is a comprehensive introduction to the theory and practical implementation of the capital cycle approach to investment. Chancellor says a capital cycle consists of two phases: ‘expansion,’ where the industry production/servicing capacity is increased, and ‘contraction’ where the capacity is reduced by selling assets. With excess profitability, a company or industry’s returns start increasing. This excess profitability attracts new entrants and competitors into it and as they start investing, it results in increased capacity, which leads to a decline in profit, and thus, businesses have to exit capacity and consolidate. When such businesses exit, there is reduced investment… show more.