Capital Returns: Investing Through the Capital Cycle [Book Review]VW Staff
Capital Returns: Investing Through the Capital Cycle: A Money Manager’s Reports 2002-15 by Edward Chancellor.
There is one place where he (likely Ostrer) quotes Johann Rupert (of Richemont) as this:
“No, no, no, no. I didn’t lose a lot of money when I tried to sell the business. I lost the money when I bought the bloody thing. That’s when you park your money, it’s not when you try to find a bigger idiot than you to take it off your hands.”
“[There are] three stages of [an] acquisition, which [are] euphoria and then disillusionment. And the next thing is looking for somebody to blame for buying the place.”
and a funny but profound one …
“The grass is always greener on the other side of the fence. But you only find out when you climb over that the reason why it’s greener is because of all the cow dung hidden in the grass. And as soon as you start stepping in all this stuff then you wonder why you ever crossed the fence.”
Capital Returns: Investing Through the Capital Cycle – Description
We live in an age of serial asset bubbles and spectacular busts. Economists, policymakers, central bankers and most people in the financial world have been blindsided by these busts, while investors have lost trillions.
Economists argue that bubbles can only be spotted after they burst and that market moves are unpredictable. Yet Marathon Asset Management, a London-based investment firm managing over $50 billion of assets has developed a relatively simple method for identifying and potentially avoiding them: follow the money, or rather the trail of investment.
Bubbles – whether they affect a whole economy or merely a single industry, tend to attract a splurge of capital spending. Excessive investment drives down returns and leads inexorably to a bust. 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: Investing Through the Capital Cycle: A Money Manager’s Reports 2002-15 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 2002 and 2014 by Marathon portfolio managers. Capital Returns provides key insights into the capital cycle strategy, all supported with real life examples – from global brewers to the semiconductor industry – showing how this approach can be usefully applied to different industry conditions and how, prior to 2008, it helped protect assets from financial catastrophe. This book will be a welcome reference for serious investors who looking to maximise portfolio returns over the long run.
Capital Returns: Investing Through the Capital Cycle – Review
‘I read Capital Returns: Investing Through the Capital Cycle: A Money Manager’s Reports 2002-15 in one sitting. I wish this book had been available when I started in the business. One of the best books on investment I’ve ever read.’ -Russell Napier, author of Anatomy of the Bear
‘Capital Returns shows how excess investment drives mean reversion in the stock market. Investors who wish to understand bubbles should read this book.’ -Jeremy Grantham, Founder and Chief Investment Strategist, Grantham, Mayo, van Otterloo
‘Forget Warren Buffett. If you really want to know how markets work read this.’ -Merryn Somerset-Webb, Editor, MoneyWeek
‘Investors, fancying themselves capitalists, have long ignored the vital role of capital investment in driving investment success. This wonderful book may change that. Delve into its readable and informative-even revelatory-pages, and let the scales fall from your eyes.’ -James Grant, Grant’s Interest Rate Observer ‘
This book exemplifies the simple but sadly unrecognised idea that long term investment success depends on understanding business models.’ John Kay, author of Other People’s Money and the Kay Review of UK Equity Markets
About the Author
Edward Chancellor (editor and introduction) is the author of Devil Take the Hindmost: A History of Financial Speculation (FSG, 1999), a New York Times ‘Notable Book of the Year’ and editor of Marathon’s previous book, Capital Account: A Money Manager’s Reports on a Turbulent Decade (Thomson Texere, 2004). Mr. Chancellor is an award-winning financial journalist, who has written for the Financial Times, Wall Street Journal, Reuters and many other publications. He is a former member of the asset allocation team at GMO, a Boston-based investment firm.
Marathon Asset Management (trading in the United States as Marathon-London) is an independent owner managed investment firm based in London. Founded in 1986, Marathon has successfully applied longer-term and often contrarian investment strategies around the globe.