Capital Returns: Investing Through the Capital Cycle - Edward Chancellor

[vikx01]

I just started reading the following book a couple of days ago. Seems to be an amazingly good read so far. There are lovely excerpts from their annual reports on what they call the "Capital Cycle". There is some very good industry analysis.

 

 

[amazonsearch]Capital Returns: Investing Through the Capital Cycle: A Money Manager's Reports 2002-15[/amazonsearch]

 

Once I finish this, I'll try to get a hold of his (Edward Chancellor's) previous book ([amazonsearch]Capital Account: A Fund Manager Reports on a Turbulent Decade, 1993-2002[/amazonsearch]) on Marathon Asset's annual reports from the 90's. I read his [amazonsearch]Devil Take the Hindmost: a History of Financial Speculation[/amazonsearch] a while back and loved it. It's of the same category as [amazonsearch]Manias, Panics and Crashes: A History of Financial Crises[/amazonsearch] by Kindleberger

 

Does anyone have letters from Marathon Asset Management? They seem to have outperformed indexes by about 5% annually since inception in 1987 (http://www.marathon.co.uk/International-Equity.aspx,) but more than that the letters would pack a lot of investing wisdom.

 

Neil Ostrer's interviews:

1. From 2014 https://personal.vanguard.com/us/insights/article/marathon-manager-interview-122014

2. From 2007 https://www.phoenix-ir.com/fund_manager/docs/Ostrer_Jan_07.pdf

 

[Borgesian]

Hey where did you get your copy of Capital Returns? Amazon doesn't have it available yet.

[vikx01]

I got mine (kindle book) from Amazon.com (the US site.)

I'm 3/4th way through it and it's a very good book indeed.

 

There is one place where he (likely Ostrer) quotes Johann Rupert (of Richemont) as this:

“No, no, no, no. I didn’t lose a lot of money when I tried to sell the business. I lost the money when I bought the bloody thing. That’s when you park your money, it’s not when you try to find a bigger idiot than you to take it off your hands.”

 

...simply classic.

 

Here's another:

“[There are] three stages of [an] acquisition, which [are] euphoria and then disillusionment. And the next thing is looking for somebody to blame for buying the place.”

 

and a funny but profound one ...

“The grass is always greener on the other side of the fence. But you only find out when you climb over that the reason why it’s greener is because of all the cow dung hidden in the grass. And as soon as you start stepping in all this stuff then you wonder why you ever crossed the fence.”

 

[Borgesian]

I got mine (kindle book) from Amazon.com (the US site.)

I'm 3/4th way through it and it's a very good book indeed.

 

There is one place where he (likely Ostrer) quotes Johann Rupert (of Richemont) as this:

“No, no, no, no. I didn’t lose a lot of money when I tried to sell the business. I lost the money when I bought the bloody thing. That’s when you park your money, it’s not when you try to find a bigger idiot than you to take it off your hands.”

 

...simply classic.

 

Here's another:

“[There are] three stages of [an] acquisition, which [are] euphoria and then disillusionment. And the next thing is looking for somebody to blame for buying the place.”

 

and a funny but profound one ...

“The grass is always greener on the other side of the fence. But you only find out when you climb over that the reason why it’s greener is because of all the cow dung hidden in the grass. And as soon as you start stepping in all this stuff then you wonder why you ever crossed the fence.”

 

Thanks! I actually just got my kindle 5 days ago so I should be able to buy it. Would have been nice if his previous book also had a digital version.

[JayGatsby]

Anyone have access to Capital Account? Going for $325+ on Amazon. https://www.amazon.com/s/ref=nb_sb_ss_c_2_15?url=search-alias%3Dstripbooks&field-keywords=capital+account&sprefix=capital+account%2Caps%2C244&crid=1GB2L7256KWPY

[Tompety03]

JayGatsby - I read capital account a couple years ago and will post my detailed notes this week.  I should still have the copy and if so, would be glad to lend it to you.

 

Chris

[winjitsu]

JayGatsby - I read capital account a couple years ago and will post my detailed notes this week.  I should still have the copy and if so, would be glad to lend it to you.

 

Chris

 

I'm not advocating for anything illegal, but I think the world would benefit if *someone* photocopied this and shared this with the world, a la Klarman's Margin of Safety :)

[ukvalueinvestment]

JayGatsby - I read capital account a couple years ago and will post my detailed notes this week.  I should still have the copy and if so, would be glad to lend it to you.

 

Chris

 

I'm not advocating for anything illegal, but I think the world would benefit if *someone* photocopied this and shared this with the world, a la Klarman's Margin of Safety :)

 

Wow - a purported value investor that doesn't understand what theft is.

[petec]

JayGatsby - I read capital account a couple years ago and will post my detailed notes this week.  I should still have the copy and if so, would be glad to lend it to you.

 

Chris

 

I'm not advocating for anything illegal, but I think the world would benefit if *someone* photocopied this and shared this with the world, a la Klarman's Margin of Safety :)

 

Wow - a purported value investor that doesn't understand what theft is.

 

I've been thinking about this.  If a book is out of print then who are you stealing from if you read a photocopy?  Not the owners of the existing copies - they don't own the IP.  And arguably not the author, who is not losing sales and seems to show no interest in satisfying the demand for his work.  I'm approaching this from a moral standpoint, not a legal one. 

[ukvalueinvestment]

Fair point.  I guess you are reducing the demand for the thing to be put back into print.

[Tompety03]

Here are my notes on Capital Account from a few years ago.  I just checked on Amazon and I bought the book for $24 in July of 2014 and it is now priced at $300+, which makes me think that I am better at investing in undervalued books than common stocks and should reallocate! 

 

http://www.boardofbooks.com/capital-account/review-and-notes/

 

There are a lot of parallels with the capital cycle strategy discussed in the book and recent events (Telsa/EVs, solar, natural gas frackers, etc.).  Hope my notes help.

 

Chris

[eclecticvalue]

Tompety03, Thank you for the notes.

[Guest]

For what it's worth, Marathon manages Harbor Diversified International All Cap fund.

[undervalued]

This book is not discontinued by the way and still available for purchase in digital and hardcopies. The 1993-2002 is discontinued but 2002-2015 is still available.

 

Digital or hardcopy: http://www.palgrave.com/us/book/9781137571649

[Jurgis]

This book is not discontinued by the way and still available for purchase in digital and hardcopies. The 1993-2002 is discontinued but 2002-2015 is still available.

 

Digital or hardcopy: http://www.palgrave.com/us/book/9781137571649

 

People are talking about the 1993-2002  ::)

 

2002-2015 is available even through Amazon both Kindle and hardcover...

[undervalued]

Found one through Google shopping: https://www.google.com/search?q=Capital+Account:+A+Fund#q=Capital+Account:+A+Fund&tbm=shop.

Not sure if this is the 1993, even though it listed the ISBN 9781587991806 and priced at $19.99. I haven't heard of this etailer before but it is fulfilled by Amazon so...

[DooDiligence]

https://www.amazon.com/Capital-Returns-Investing-Through-Managers-ebook/dp/B01FYBLG9I/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1487635394&sr=1-1&keywords=capital+returns

[Guest notorious546]

anyone have any book recommendations that are similar to this one? IE) global investing rather than just usa

[JayGatsby]

anyone have any book recommendations that are similar to this one? IE) global investing rather than just usa

They're fairly different but I really like Jim Rogers' books if you're interested in global investing. He's been an extremely successful "emerging market" investor. If I remember right, Street Smarts was the high level summary written later. Investment Biker and Adventure Capitalist are the stories of his trips around the world (1989 and 2000, respectively). The reason I put emerging markets in quotes is he's critical of the idea of emerging markets as an asset class and was early on saying that BRIC was a flawed concept. His basic edge was just going places and talking to people. That gave him the actual understanding of the cultures and governments in which he was investing, while most asset managers were just reading about it. As an example, his counter to bullishness on India has always been to tell people to try driving across it. He's always been positive on China because he saw the ingenuity and work ethic of the people when he first rode across it sometime in the 80's. He likes situations where the political/economic culture is changing. There's a video of him online buying paper shares at a window in China... I think just as the exchange was being established if I remember right and probably as the first American to buy shares. Some people criticize him for possibly being overly negative on the current monetary situation... I guess we'll see.

[schin]

I bought it when the thread got posted... I believe it was $50 dollars then... so, it has been a good investment both mentally and monetarily.  

 

I would put it up there with Margin of Safety by Klarman.... I have to admit this forum has highlighted some books that were amazing and now out of print like Investor AB.

 

You can still find Capital Returns on Amazon..I would recommend that read.

[John Hjorth]

19 hours ago, schin said:

I bought it when the thread got posted... I believe it was $50 dollars then... so, it has been a good investment both mentally and monetarily.  

 

I would put it up there with Margin of Safety by Klarman.... I have to admit this forum has highlighted some books that were amazing and now out of print like Investor AB.

 

You can still find Capital Returns on Amazon..I would recommend that read.

 

Off topic :

 

We definitely need to help each other here on CoBF about getting better to collect and snap up second hand books, that are rarely supplied at any international, national, regional, or local marketplace.

 

It is about cooperation among interested CoBF members about detailed mapping of all potential sources of supply.

 

- - - o 0 o - - -

 

Now back to topic.

 

- - - o 0 o - - -

 

Have a nice weekend.

Edited February 10 by John Hjorth

[Gamecock-YT]

I want to say there's a PDF version of Capital Account floating around on the internet, though to be honest I got a lot more out of Capital Returns than I did Capital Account. 

[Gamecock-YT]

Also ever since I've read the book, I always try and note article I find that make a point of identifying where we are in the capital cycle, just came across this article on Maersk:

 

https://www.ft.com/content/1908b06c-0a38-4f5d-81f8-05b42baff81e

 

 

Quote

Maersk shares drop after it warns on shipping outlook and suspends buybacks

World’s second-largest container shipping group says industry is confronting oversupply

 

Shares in AP Møller-Maersk plunged on Thursday after it warned of a “difficult patch” for the container shipping industry, suspended its share buyback programme and slashed its dividend. Vincent Clerc, chief executive of the world’s second-largest container line, said that large amounts of new ships due for delivery this year and next would saddle the sector with an excess capacity, hitting results for some time. “This overcapacity will put earnings under pressure . . . and could mean a difficult patch in the coming years. We are in front of a situation that requires a lot of prudence,” he told the Financial Times. Shares in Copenhagen-listed Maersk fell more than 13 per cent in early trading on Thursday. Faced with an especially uncertain outlook, Maersk said it would be scrapping the fifth part of a share buyback plan, worth $1.6bn, that it had announced in November.

 

 

I also try to capture and save the euphoria articles so went to see if I had any for shipping, sure enough from August 2021:

 

https://www.ft.com/content/6145121c-7069-4ca5-bd8f-429461617d37

 

Quote

Shipping group Hapag-Lloyd earns more in 6 months than in previous 10 years

Supply chain ructions during pandemic drive bumper earnings at German group and rivals

One of the world’s largest shipping companies has reported first-half profits far in excess of those made over the past decade as a whole, illuminating how disruption to global supply chains is powering bumper profits for carriers. Hapag-Lloyd’s net profit for the six months to June jumped tenfold over the previous year to €2.7bn as freight rates surged due to rampant demand for goods, bottlenecks at ports and a shortage of empty containers. That compares to a total net profit of €977m in the previous 10 years. “What we’ve seen in 2021, I don’t know if we’ll ever see that again,” chief executive Rolf Habben Jansen told the Financial Times. The pandemic has caused large ructions in supply chains and shipping due to volatile demand as a result of lockdowns and booming ecommerce. Containers have been in short supply and vessels have been tied up waiting to berth at overwhelmed ports, leading shipping costs to rocket since the end of last year.

 

The article also links to a Maersk article which mentioned: "Other container shipping companies have begun ordering new vessels again, hoping for the current surge in demand to continue."

 

 

[schin]

On 2/14/2024 at 8:42 AM, Gamecock-YT said:

Also ever since I've read the book, I always try and note article I find that make a point of identifying where we are in the capital cycle, just came across this article on Maersk:

 

https://www.ft.com/content/1908b06c-0a38-4f5d-81f8-05b42baff81e

 

 

 

 

I also try to capture and save the euphoria articles so went to see if I had any for shipping, sure enough from August 2021:

 

https://www.ft.com/content/6145121c-7069-4ca5-bd8f-429461617d37

 

 

The article also links to a Maersk article which mentioned: "Other container shipping companies have begun ordering new vessels again, hoping for the current surge in demand to continue."

 

 

 

@Gamecock-YT - Have their concepts impacted your investing style? I know Howard Marks talks about super cycle too. So, I do like their writing on cycles, but don't trade in and out of cycles. (sector rotation). I generally use it to analyze an industry in down cycles that should revive -- like European banking.... or banking in America circa 2010.

 

I know shipping and oil are super cyclical, but they are commodities.

[Gamecock-YT]

On 2/22/2024 at 11:03 AM, schin said:

 

@Gamecock-YT - Have their concepts impacted your investing style? I know Howard Marks talks about super cycle too. So, I do like their writing on cycles, but don't trade in and out of cycles. (sector rotation). I generally use it to analyze an industry in down cycles that should revive -- like European banking.... or banking in America circa 2010.

 

I know shipping and oil are super cyclical, but they are commodities.

 

It's a good question. I think it's allowed me to get more comfortable investing in more commodity-type businesses by understanding where we are in the capital cycle. I guess the big winner using their concept was Scorpio Tankers. It was a losing position for a long time, with even bankruptcy concerns for most of 2018-2019. But the thesis was always that there was an inevitable supply crunch coming down the pike, no ships had been built since the last boom and product tankers have a finite life (~15 years) where most major oil companies won't contract ships older than that due to contamination concerns. Then Russia invades Ukraine and product tanker stocks go up 200-300%. 

 

But I think now I'm using it as a quasi-screening process when I start seeing M&A activity, dividend cuts, bankruptcies it's a clue to start looking into the industry. Likewise when you see capex increases and/or debt increasing it's a sign that it might be time to start taking money off the table. 

Edited February 23 by Gamecock-YT