Capital Returns: Investing Through The Capital Cycle – Book Review

Capital Returns: Investing Through The Capital Cycle – Book Review

Capital Returns – Edward Chancelor / Marathon Asset Mgt. by Value & Opportunity

Capital Returns: Investing Through The Capital Cycle: A Money Manager’s Reports 2002-15 by Edward Chancellor

“Capital Returns” is an edited collection of investor letters from UK based Marathon Asset Management. Before reading the book, I actually didn’t know much about Marathon.

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On their website, they summarize their strategy as follows:

At the heart of Marathon’s investment philosophy is the capital cycle approach to investment.  It is based on the idea that the prospect of high returns will attract excessive capital (and hence competition), and vice versa.  In addition, an assessment of how management responds to the forces of the capital cycle and how they are incentivised are critical to the investment outcome.

This capital cycle approach is very interesting. As mentioned above, the book has no direct narrative. The investor letters are however clustered together in chapters with similar main topics:

  • Capital cycle, sectors (automoblie, commodity, cod fishing, beer, oil)
  • Growth (Colgate, Geberit, Intertek, Amazon, digital moats, Rightmove, Baidu)
  • Management (incentives,  pro cyclicality, capital allocation, Sampo, Scandinavia, family ownership, Richemont, management meetings, culture)
  • Crisis (Anglo Irish, securitizations, private equity, Spanish property, German banking, Northern Rock, Handelsbanken)
  • After the crash (Spanish construction, Bank of Ireland, PIIGS, low interest rates
  • China
  • Funny “Greedspin” Christmas letters

The book is not so easy to read because the letters themselves, despite very well written, are very condensed with a lot of deep insights. I always had to take a kind of a mental break after one or two letters in order to digest everything

Overall, I would characterize their approach as follows:

  • International with an European focus
  • generalist approach, all sectors, differenent business models
  • transformation from “cheap” to “quality” over the years
  • they also invest into financials
  • the invest relatively diversified

More here Value & Opportunity  more on book below

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


‘I read Capital Returns 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.


Capital Returns: Investing Through The Capital Cycle: A Money Manager’s Reports 2002-15 by Edward Chancellor

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