Capital Returns: Investing Through the Capital Cycle: A Money Manager’s Reports 2002-15

Capital Returns: Investing Through the Capital Cycle: A Money Manager’s Reports 2002-15

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 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.


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Editorial Reviews


?Capital Returns brings together industrial economics, Michael Porter?s competitive analysis and behavioral finance, into a powerful long-term investment approach that Marathon Asset Management calls?capital cycle? analysis. One of the best investing books I?ve read is this one. Highly recommended! The value is strictly value.

The capital cycle is an important andunderappreciated subject. Edward Chancellor is one of the great financial writers of our era. Capital Returns looks at a mechanism in the capital markets. It is essential reading for the securities analyst and will prove profitable for any finance professional. William J. Bernstein is the publisher of theCFA Institute Publications. The 1st, 2nd, 3rd, 4th, 5th, 6th, 7th, 8th, 9th, 10th, 11th, 12th, 13th, 14th, 15th, 16th, 17th, 18th, 19th,

–This text refers to an alternate kindle_edition edition.

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.
–This text refers to an alternate kindle_edition edition.


I read Capital Returns in one sitting. I would have liked this book to be available when I was in the business. One of the best books on investing I’ve ever read.

The author of Anatomy of the Bear is Russell Napier.

Excess investment drives mean reversion in the stock market. This book is for investors who want to understand bubbles.

Jeremy Grantham is the founder and chief investment strategist.

Don’t even think about Warren Buffett. If you want to know how markets work, read this.

MoneyWeek is edited by Merryn Somerset-Webb.

‘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.’

Grant’s Interest Rate Observer is James Grant.

The book shows that long term investment success depends on understanding business models.

John Kay is the author of Other People’s Money and the Kay Review of UK Equity Markets.

–This text refers to an alternate kindle_edition edition.

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