Capital Returns

more (in P/E terms) for the business with high returns on equity and superior cash flow generation.

From a capital cycle perspective, the above situations only become attractive when stock market valuations fall to a fraction of replacement cost and a path opens up for dealing with the excess capacity.

When it comes to investment analysis, looking for relevant historical parallels (e.g., comparing the US real estate boom of the 2000s to the Japanese real estate market in the 1980s)

Capital cycle analysis is really about how competitive advantage changes over time, viewed from an investor’s perspective.

Marathon’s private ownership and longstanding client relationships enable the firm to adopt a long-term approach, more tolerant of benchmark deviation, which is necessary to apply capital cycle analysis.

High current profitability often leads to overconfidence among managers, who confuse benign industry conditions with their own skill – a mistake encouraged by the media, which is constantly looking for corporate heroes and villains.

(namely, that once a data point is widely used as a measuring stick, it ceases to be reliable).

What we can say is that countries generally become more efficient in their use of raw materials as their economies develop, and so we should not be surprised to see the same thing happening gradually in China.

Intrinsic pricing power is created when price is not the most important factor in a customer’s purchase decision.