Capital Returns

In other words, capital cycle analysis was all about the drivers of mean reversion.

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.

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.

•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.

Fast-growing companies with little or no profits and high valuations, such as Amazon, can still make good investments provided their industry’s supply side remains supportive.

New technologies often interfere with the smooth operation of the capital cycle.

In recent years, capital cycle analysis has been more useful at picking stocks in companies which can maintain high returns than in finding opportunities among bombed-out industries recovering (or not) after a supply side restructuring.

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.

In our view, their intrinsic valuation is so uncertain that owning the shares is pure speculation.