By Edward Chancellor
This ebook makes use of a variety of examples to illustrate how the capital cycle method of investments works, and the way it has supplied traders with market-beating returns during the last decade.
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Additional info for Capital Returns: Investing Through the Capital Cycle: A Money Manager’s Reports 2002–15
Employment or anti-trust concerns blunt the efficacy of this process, most notably via Chapter 11 bankruptcy protection. ” Likewise on a broader macroeconomic level, the low interest rate policy of the Federal Reserve – replacing an investment/ tech bubble with a housing/credit bubble – has (so far) stymied many of the natural evolutionary forces. But that’s another story ... A basic industry with few players, rational management, barriers to entry, a lack of exit barriers and non-complex rules of engagement is the perfect setting for companies to engage in cooperative behaviour.
Under such circumstances, it’s collectively rational for the incumbents to prevent any expansion – since gains only accrue to one of their number. If the industry is competitive or has low barriers to entry, there is an incentive for one player to break ranks and enjoy the fruits of expansion. The remainder may feel obliged to follow suit, as they can’t abide a competitor leaving them standing and may wish to protect market share. 1 “Evolution of cooperation”). LIMITS TO ARBITRAGE If high asset growth companies consistently underperform, why don’t smart investors simply short these stocks?
This capital cycle started a few years back after the pick-up in commodity prices led to a material improvement in the returns on equity for mining companies. Initially, the miners’ response to improved conditions in their industry appears to have been quite controlled – capital expenditure relative to cash flow somewhat declined in the early 2000s as commodity prices began to rise. Nor was there a bubble in the stock market. Mining shares performed well because their fundamentals had never been better.
Capital Returns: Investing Through the Capital Cycle: A Money Manager’s Reports 2002–15 by Edward Chancellor