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Capital Account: A Fund Manager Reports on a Turbulent Decade, 1993-2002
Capital Account relates the story of the world's greatest investment bubble from the perspective of professional investors. The book, comprised of selected reports from Marathon Asset Management, a successful global investment firm, explains how shareholder value - the notion that companies should be run in the interests of their shareholders - became corrupted in this era of frenzied finance. Senior managers, succumbing to the lure of stock option fortunes, took to manipulating their company's earnings. Professional investors, interested only in maintaining their investment performance over the next quarter, were willing abettors. The 'croupiers' of Wall Street, also know as investment bankers, whipped up the euphoria and peddled to investors superficially plausible stories, 'MacGuffins', in order to generate huge fees for themselves. As a result, by the turn of the century almost the entire investment community had become fixated with chasing short-term profits at the expense of long-term returns for clients. By the end of 2002 this cynical game had ended in investment disaster- the world's stock markets having produced more than $15 trillion of losses since their peak. Yet to a large extent, the outcome was predictable to those investors who had retained a disciplined approach to investment analysis throughout the bull market. This book introduces the 'capital cycle' approach to investment - an approach that brings together ideas from the fields of behavioral finance, economic theory and business analysis. Capital cycle analysis - based on the apparently simple insight that investor euphoria leads to excessive investment in the real world and subsequent poor returns for shareholders - enabled Marathon to identify at an early stage the inevitable collapse of the technology and telecoms bubble.
272 pages, Hardcover
First published April 22, 2004
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August 20, 2018
There lies a danger in rereading books after a long time – it’s not always they age gracefully. The subtitle of Capital Account is A Money Manager’s Reports on a Turbulent Decade, 1993-2002. The time period corresponds roughly to the first half of my time in the equity market so far and I read the book when it came out in 2004. I liked it then and I like it even more now. In fact, I’m sure that I had benefitted greatly had I thought deeper about the topics presented at the time.
The disposition is that Edward Chancellor, the author of the excellent book Devil Takes the Hindmost, has selected, edited and sorted a number of essays from Marathon Asset Management’s investment letter into chapters on various subjects. Marathon is a London based independent asset manager that often takes contrarian positions. Each essay is only 2 or 3 pages long but with 6 or 7 of them per topic they give a varied description.
The reason that I’m rereading the book is that the sequel was published this year and I wanted to get the timeline right. It’s fascinating to again be taken back to the period building up to the TMT crash. Everything feels highly familiar but yet much would be quite alien in today’s environment. The first that is striking is the unbridled market optimism – or over-optimism as Marathon correctly views much of what’s happening. The stock market was in the final stages of one of its longest bull markets ever. A Western world muddling through a Japanese scenario and a stock market that myopically speculates in monetary policy was inconceivable.
The focus on technology issues like fiber optics is naturally pretty feverish. Although I’m not sure that the attention paid to cloud, big data, fintech etc. in Silicon Valley today truly differs much. Still, it was much more widespread then. Economic Value Added and the shareholder value movement were seen as something constructively creative and not as a short-termist scheme to rob other stakeholders as popular press would have it today.
Interestingly though, Marathon warns very early that the concept of EVA was started to be used in a much too simple manner. I also find a picture or two that I have used over the years and that I didn’t realize that Marathon was the source to.
Even though it clearly was a different time the book never feels dated. The key investment tenants of Marathon are timeless and much of the discussions could as such be taken directly from a 2016 investment letter. I appreciate the focus on corporate managers capital allocation, the clear thinking on incentive schemes and the picture they paint of the temptation of diving into the short- term IPO-frenzy (with it’s folly of relative valuation multiples).
What really stands out however is the firm’s usage of the concept The Capital Cycle. When investors analyze the future economic and stock market environment it’s all too easy to focus on future supply. What is then equally easy is to sideline any deep thinking on supply. Marathon has specialized in analyzing how swings in competitive intensity and capital investments influence the economic cycle of sectors and this has apparently served them well when looking at their investment results. From The Capital Cycle two types of investment cases arise; the franchise stock that will keep its high ROIC longer than the market price and the turnaround with a better fate than feared.
Chancellor creates a flowing narrative out of the stand-alone pieces of puzzle that the essays were. The overlaps are few. The task is considerably helped by the fact that Marathon has a very strong investment philosophy that ties everything they say and do together to a coherent view of the investment world.
At the same time as this book takes you back to the heat of the moment you must admire the theoretical overview that Marathon Asset Management had when analyzing their investment environment at the time.
The disposition is that Edward Chancellor, the author of the excellent book Devil Takes the Hindmost, has selected, edited and sorted a number of essays from Marathon Asset Management’s investment letter into chapters on various subjects. Marathon is a London based independent asset manager that often takes contrarian positions. Each essay is only 2 or 3 pages long but with 6 or 7 of them per topic they give a varied description.
The reason that I’m rereading the book is that the sequel was published this year and I wanted to get the timeline right. It’s fascinating to again be taken back to the period building up to the TMT crash. Everything feels highly familiar but yet much would be quite alien in today’s environment. The first that is striking is the unbridled market optimism – or over-optimism as Marathon correctly views much of what’s happening. The stock market was in the final stages of one of its longest bull markets ever. A Western world muddling through a Japanese scenario and a stock market that myopically speculates in monetary policy was inconceivable.
The focus on technology issues like fiber optics is naturally pretty feverish. Although I’m not sure that the attention paid to cloud, big data, fintech etc. in Silicon Valley today truly differs much. Still, it was much more widespread then. Economic Value Added and the shareholder value movement were seen as something constructively creative and not as a short-termist scheme to rob other stakeholders as popular press would have it today.
Interestingly though, Marathon warns very early that the concept of EVA was started to be used in a much too simple manner. I also find a picture or two that I have used over the years and that I didn’t realize that Marathon was the source to.
Even though it clearly was a different time the book never feels dated. The key investment tenants of Marathon are timeless and much of the discussions could as such be taken directly from a 2016 investment letter. I appreciate the focus on corporate managers capital allocation, the clear thinking on incentive schemes and the picture they paint of the temptation of diving into the short- term IPO-frenzy (with it’s folly of relative valuation multiples).
What really stands out however is the firm’s usage of the concept The Capital Cycle. When investors analyze the future economic and stock market environment it’s all too easy to focus on future supply. What is then equally easy is to sideline any deep thinking on supply. Marathon has specialized in analyzing how swings in competitive intensity and capital investments influence the economic cycle of sectors and this has apparently served them well when looking at their investment results. From The Capital Cycle two types of investment cases arise; the franchise stock that will keep its high ROIC longer than the market price and the turnaround with a better fate than feared.
Chancellor creates a flowing narrative out of the stand-alone pieces of puzzle that the essays were. The overlaps are few. The task is considerably helped by the fact that Marathon has a very strong investment philosophy that ties everything they say and do together to a coherent view of the investment world.
At the same time as this book takes you back to the heat of the moment you must admire the theoretical overview that Marathon Asset Management had when analyzing their investment environment at the time.
July 23, 2024
A critically important book which provides the reader with a play-by-play account of the lunacy that permeated capital markets from the mid 90s through to the early 2000s. The minds at Marathon, perhaps the most brilliant group of investors of this era, accurately predicted much of the fallout that was to come from the New Economy mania. Despite years of mania suggesting that Marathon was wrong, they never strayed an inch from their sober, rational view of the irrational behavior all around them, and in the end they were rewarded for their patience.
Hands down one of the most important and educational books I have ever read. Filled one-and-a-half legal pads with notes while reading this.
Hands down one of the most important and educational books I have ever read. Filled one-and-a-half legal pads with notes while reading this.
July 16, 2025
Great explanations on capital cycle analysis and interesting account of the TMT bubble as it was unfolding
February 28, 2021
You can find a copy of this book to borrow through the Internet Archive. This book is out of print, and is therefore difficult to find, but after reading Capital Returns I have been eager to get my hands on it. The book is a collection of essays from Marathon Asset Management (the UK equity investment firm, not to be confused with the large US-based distressed debt investment firm) from the 1990s through the burst of the dot-com bubble. It's unbelievable the parallels that are evident to today's environment with the explosion in technology company valuations. Like Capital Returns, this book espouses Marathon's approach using the capital cycle framework. However, this book includes a few more in-depth case studies which demonstrate the way that Marathon thought about specific company valuations particularly within the telecom sector, which experienced a huge bubble in the 1990s. It's great that these letters are labeled with their dates, as they discuss many of the dynamics that are again in vogue in marketing the valuations of tech companies. Among these prevalent in the 1990s are:
1. Discussions of buzzwords such as "S-Curve" exponential growth, "network effects", "winner-take-all", "increasing returns", "first-mover advantage", etc.
2. The huge spread between growth and value stocks which endured for an extended period, inflated by the relatively low 6% (!) interest rates
3. The inability of investors to avoid ownership in companies that they knew were significantly overvalued due to short term incentives and underperformance
4. The large number and huge size of IPOs, and the squeeze in the share prices of tech firms due to a lack of free float, further distorted by indexes which were market-cap weighted but did not adjust for the shares available to trade
5. The huge contribution of a few stocks to the overall performance of the S&P 500
6. The large number of buy ratings and clustering of similar valuations and models by investment bank research departments of New Economy companies
7. The single-minded focus on growth irrespective of what the return on capital associated with that growth actually is
The parallels are simply incredible, and demonstrate the level of foresight that the investment professionals at Marathon had. The book acknowledges, however, the instances that the predictions were premature, such as Marathon's prediction in 1995 that the bull market for Internet stocks was nearing its end. Interestingly, Marathon also characterized financial institutions as Too Big to Fail in the year 2000, nearly a full decade before that term came into vogue.
It's fitting that this book is out of print and thus extremely hard to find. In John Kenneth Galbraith's book A Short History of Financial Euphoria, one of the principal reasons that is identified as a cause for bubbles is that as time passes, a new generation which had not experienced the previous bubble comes to work in the financial markets. The lessons of the past are forgotten because they were not experienced, and young motivated financiers "discover" persuasive principles and "invent" financial techniques (in quotes because often these "discoveries" and "inventions" are not new, witness SPACs in today's market for example) which promote the next cycle. It is now over 20 years since the burst of the tech bubble in March 2000, and many of the lessons from the 90s are now fading from memory.
Aside from the discussion of the tech bubble in particular, Capital Account also discusses some of the central principles for Marathon which are reinforced in Capital Returns:
1. Returns are largely determined by the competitive environment, and high returns on capital tend to attract competition and investment in capacity as shares of firms trade at much higher valuations than their replacement cost
2. The supply side is easier to forecast than the demand
3. Investment bankers tend to exacerbate the capital cycle and encourage the most investment at the worst prices
4. Shrinking firms can still earn high returns for shareholders if valued appropriately as industry consolidates and capital is withdrawn, leading to improving returns on capital
5. Mispricings often result from incorrect assumptions about mean reversion. Roughly, value is a faster reversion to the mean from a recent downturn. Growth is the extended duration of elevated growth relative to expectations from the market
6. Management who behave like shareholders are desirable. No general framework, but good to interact with management to get a sense of their character. Those who admit mistakes without prompting, and who are less promotional with their stock and themselves tend to be better stewards
1. Discussions of buzzwords such as "S-Curve" exponential growth, "network effects", "winner-take-all", "increasing returns", "first-mover advantage", etc.
2. The huge spread between growth and value stocks which endured for an extended period, inflated by the relatively low 6% (!) interest rates
3. The inability of investors to avoid ownership in companies that they knew were significantly overvalued due to short term incentives and underperformance
4. The large number and huge size of IPOs, and the squeeze in the share prices of tech firms due to a lack of free float, further distorted by indexes which were market-cap weighted but did not adjust for the shares available to trade
5. The huge contribution of a few stocks to the overall performance of the S&P 500
6. The large number of buy ratings and clustering of similar valuations and models by investment bank research departments of New Economy companies
7. The single-minded focus on growth irrespective of what the return on capital associated with that growth actually is
The parallels are simply incredible, and demonstrate the level of foresight that the investment professionals at Marathon had. The book acknowledges, however, the instances that the predictions were premature, such as Marathon's prediction in 1995 that the bull market for Internet stocks was nearing its end. Interestingly, Marathon also characterized financial institutions as Too Big to Fail in the year 2000, nearly a full decade before that term came into vogue.
It's fitting that this book is out of print and thus extremely hard to find. In John Kenneth Galbraith's book A Short History of Financial Euphoria, one of the principal reasons that is identified as a cause for bubbles is that as time passes, a new generation which had not experienced the previous bubble comes to work in the financial markets. The lessons of the past are forgotten because they were not experienced, and young motivated financiers "discover" persuasive principles and "invent" financial techniques (in quotes because often these "discoveries" and "inventions" are not new, witness SPACs in today's market for example) which promote the next cycle. It is now over 20 years since the burst of the tech bubble in March 2000, and many of the lessons from the 90s are now fading from memory.
Aside from the discussion of the tech bubble in particular, Capital Account also discusses some of the central principles for Marathon which are reinforced in Capital Returns:
1. Returns are largely determined by the competitive environment, and high returns on capital tend to attract competition and investment in capacity as shares of firms trade at much higher valuations than their replacement cost
2. The supply side is easier to forecast than the demand
3. Investment bankers tend to exacerbate the capital cycle and encourage the most investment at the worst prices
4. Shrinking firms can still earn high returns for shareholders if valued appropriately as industry consolidates and capital is withdrawn, leading to improving returns on capital
5. Mispricings often result from incorrect assumptions about mean reversion. Roughly, value is a faster reversion to the mean from a recent downturn. Growth is the extended duration of elevated growth relative to expectations from the market
6. Management who behave like shareholders are desirable. No general framework, but good to interact with management to get a sense of their character. Those who admit mistakes without prompting, and who are less promotional with their stock and themselves tend to be better stewards
September 14, 2020
Edward Chancellor is the author of other books, including Devil Take the Hindmost, and Capital Returns (published in 2014 or 2015). I happened to read Capital Returns first, and found that the first twenty or thirty pages are so fascinating. This Capital Account is even better: it is well-structured, better edited (than Capital Returns) that I enjoyed most of the newsletters, as they all told coherent themes throughout the book. I learned a lot reading the book, and enjoyed almost every single page of it.
September 23, 2024
I liked this book, but I loved Capital Returns. And that is the issue: I read them out of order.
Capital Returns is far better and covers the bones of what is introduced here. I already knew the core tenants and the new material was just discussion around what was going on at the time. And much of that is already known to investors.
I do think I would have rated this more highly if I had read this first. Yet here we are.
Capital Returns is far better and covers the bones of what is introduced here. I already knew the core tenants and the new material was just discussion around what was going on at the time. And much of that is already known to investors.
I do think I would have rated this more highly if I had read this first. Yet here we are.
January 28, 2022
A summary of investing using a capital cycles framework: sectors get hot, capital floods in, incentives get skewed, companies over-invest, returns get depressed, capital absconds, incentives get aligned, sectors go out of fashion, returns increase. The book is a good compendium of letters sorted thematically about investing along the capital cycle, but the most valuable section is the introduction written by Edward Chancellor. Chancellor is able to summarize the investment philosophy clearly and without becoming discursive (as the endless stream of investor letters about the Tech Bubble quickly become). I found the best way to approach this book was to read the introduction in full and then skip through the chapters finding interesting anecdotes or themes that elucidate what day-to-day investing feels like during periods of massive, untamed flows of capital.
January 13, 2020
Probably one of my most highlighted books, lots of wisdom and value from the guys at Marathon. The book though, is out of print, and not really a book but a collection of letters from Marathon fund team.
They espouse the Capital Account method (further elaborated in the more recent "Capital Returns" by Chancellor) which has huge implications for traditional "capacity driven" industries, although arguably much less applicable to industries naturally driven by abundance such as the internet.
The one negative I would point out is that as a collection of separate letters, it can be a bit repetitive to read all at once. Nonetheless, investors would be wise to pay heed to their advice as they detail how they successfully navigated the dot com boom and bust.
They espouse the Capital Account method (further elaborated in the more recent "Capital Returns" by Chancellor) which has huge implications for traditional "capacity driven" industries, although arguably much less applicable to industries naturally driven by abundance such as the internet.
The one negative I would point out is that as a collection of separate letters, it can be a bit repetitive to read all at once. Nonetheless, investors would be wise to pay heed to their advice as they detail how they successfully navigated the dot com boom and bust.
December 28, 2018
Not as good as Capital Returns - but so much fun to see the IT bubble covered from Europe.
What I didnt know: There was a crazy telecom bubble in conjunction with the IT bubble.
Also, a capex boom of fibres and network, etc.
Covers the boom in Europe quite well.
Great analysis of Nokia, Deutsche Telecom, Vodafone and many others.
And a great insight into bad corporate practices, poor accountancy and reporting even in companies like Coca Cola.
Great learning. Should be on an investor's shelf
What I didnt know: There was a crazy telecom bubble in conjunction with the IT bubble.
Also, a capex boom of fibres and network, etc.
Covers the boom in Europe quite well.
Great analysis of Nokia, Deutsche Telecom, Vodafone and many others.
And a great insight into bad corporate practices, poor accountancy and reporting even in companies like Coca Cola.
Great learning. Should be on an investor's shelf
May 20, 2020
Great fundamental analysis for short to medium term. Good ideas to prevent overvaluation. Prescient and can be applied to current day situation. Didn’t know “New Economy” as a term was used in the 1990s already!
As the book pointed out though, markets have turned short termistic so it’s hard to stay the course with Marathon’s strategy when benchmarked against other funds. It’s hard to be “right” 3-4 years in advance..
As the book pointed out though, markets have turned short termistic so it’s hard to stay the course with Marathon’s strategy when benchmarked against other funds. It’s hard to be “right” 3-4 years in advance..
January 19, 2023
The story about hype, overvaluation and fraud in TMT stock (Technology, media and entertainment, and telecommunications) at peak of DOTCOM bubble in late 90s is indistinguishable with our past years in some of tech-stock, SPACs and cryptocurrency.
and it's possible that the process we have to go through the failed excess capital investment in next 1-2 year ahead can be compared with fiber optic and other merger of large telecom company in the past.
and it's possible that the process we have to go through the failed excess capital investment in next 1-2 year ahead can be compared with fiber optic and other merger of large telecom company in the past.
March 1, 2021
This investment classic provides an original and high quality insightful study of market cycle. It dares to sail against the herd with firm conviction. An investor would be well advised to go through the book and learn the lessons.
August 6, 2023
History doesn’t repeat but rimes…
Great insight on what was to experience the 2000 dotcom bubble as well as other apparent hot sectors such as telcos and Nokia.
It was a time that index trackers caused large caps to have an over performance vs small caps — interestingly similar to current times.
Great insight on what was to experience the 2000 dotcom bubble as well as other apparent hot sectors such as telcos and Nokia.
It was a time that index trackers caused large caps to have an over performance vs small caps — interestingly similar to current times.
January 10, 2026
This is an amazing book. Out of print. If you can get a free copy on line and print it. If you are a student of markets and financial history it covers the TMT and internet bubbles from the Birds Eye perspective of a seasoned value investor.
January 17, 2026
It is a bit repetitive but I like the Marathon letters. I think Capital Returns might be a bit more interesting a read but Internet Bubble is canonical. I think the Capital Cycle is probably under discussed so these books are valuable
September 27, 2020
Not as good as
Capital Returns: Investing Through the Capital Cycle: A Money Manager's Reports 2002-15
by the same author, but it comes with a great history lesson that shows what happened 20 years ago is still very relevant in 2020.
November 5, 2010
A thought-provoking read, and good historical snapshot of the dot-com TMT boom and bust decade. Some great concepts, noted below:
Capital cycle -- the idea that an industry with high margins will attract more capital, leading the over-investment and falling margins, leading to overcapacity, which leads to low margins and under-investment, which leads to insufficient supply and recovering margins, which attracts more capital...
p47 -- the statement that "now that inflation is declining, it seems to us the stage is set for revival of interest in the influence of supply side on returns" -- supply side referring to competitive pressures. The point that inflation enables weaker businesses to 'hide', whereas a deflationary environment results in the strong surviving -- implying that stock selection is more critical in a deflationary environment? -- is interesting.
p60: Management reinvestment matric: for business managers but good framework for general capital allocation as investors:
4 x 4 matrix, a business can be plotted onto the square. Vertical axis runs from Low to High market attractiveness. Horizontal axis runs from Weak to Strong competitive position.
If low on both market attractiveness and competitive position, or mid in one but low on the other -- Exit business;
If mid in one but above average on the other, or if mid in both -- Manage business for cash
If above average in both, or high in one and above average in the other -- Invest sufficiently to maintain the business
If high in both market attractiveness and competitive position -- Invest more capital and grow the business.
p93: Categorising growth stocks -- to help identify source of growth and thereby the risks attached. Better in visual form of course! Generally, as you go lower down the list, business risk declines as management has more control over the operating model.
Is growth based on:
(i) Aggressive capital expansion? Risk: Is it financeable? Oversupply risk?
(ii) Acquisitions? Risk: Is value gap (either synergies > premium paid, or using cheap shares to purchase expensive ones) sustainable?
(iii) Valuation? Risk: Oversupply?
(iv) Raising prices? Risk: Will high prices reduce demand, erode market share?
(v) Passing or efficiency gains? Risk: Extent to which this can be done, competitive response?
(vi) Substitutionary locomotion (er, that means some sort of ongoing, sustainable investment into a innovative, disruptive new product that taps or creates a new market -- the best kind of growth)? Risk: valuation risk. excessive expectations, accounting risk? (Hmm, how about 'you stop innovating' risk?)
p173: the 2 handled pump --
ok, not a concept but an anecdote, a lovely one: about how the owners of the Comstock Lode Silver Mine in Nevada in the 19th C used rumors of huge reserves to boost their share price, sold shares, then flooded the mine to destroy market value, in order to buy shares back.
p200: Thinking about company turnarounds:
Easier turnarounds:
Intellectually honest management
Good capital allocation, declining levels of investment preferred
Robust core business
Long product lives/loyal customer base
Constrained supply side
Good balance sheet
Constructive fellow investors (bond and equity)
Properly constructed management incentives
Harder turnarounds:
Management in denial
More investment needed
Core business troubled
Short product lives/disloyal customer base
Supply side out of control (competitive)
Bad balance sheet
Stubborn investment constituencies
Counter productive incentives
p216 (last one, I like this a lot!) Goodhart's law -- akin to Heisenberg's Uncertainty principle -- 'when a measure becomes a target, it ceases to be a good measure' -- i.e. people will learn to game whatever quantitative system or valuation method they are evaluated by, so there will never be one single foolproof way to think about valuation.
Capital cycle -- the idea that an industry with high margins will attract more capital, leading the over-investment and falling margins, leading to overcapacity, which leads to low margins and under-investment, which leads to insufficient supply and recovering margins, which attracts more capital...
p47 -- the statement that "now that inflation is declining, it seems to us the stage is set for revival of interest in the influence of supply side on returns" -- supply side referring to competitive pressures. The point that inflation enables weaker businesses to 'hide', whereas a deflationary environment results in the strong surviving -- implying that stock selection is more critical in a deflationary environment? -- is interesting.
p60: Management reinvestment matric: for business managers but good framework for general capital allocation as investors:
4 x 4 matrix, a business can be plotted onto the square. Vertical axis runs from Low to High market attractiveness. Horizontal axis runs from Weak to Strong competitive position.
If low on both market attractiveness and competitive position, or mid in one but low on the other -- Exit business;
If mid in one but above average on the other, or if mid in both -- Manage business for cash
If above average in both, or high in one and above average in the other -- Invest sufficiently to maintain the business
If high in both market attractiveness and competitive position -- Invest more capital and grow the business.
p93: Categorising growth stocks -- to help identify source of growth and thereby the risks attached. Better in visual form of course! Generally, as you go lower down the list, business risk declines as management has more control over the operating model.
Is growth based on:
(i) Aggressive capital expansion? Risk: Is it financeable? Oversupply risk?
(ii) Acquisitions? Risk: Is value gap (either synergies > premium paid, or using cheap shares to purchase expensive ones) sustainable?
(iii) Valuation? Risk: Oversupply?
(iv) Raising prices? Risk: Will high prices reduce demand, erode market share?
(v) Passing or efficiency gains? Risk: Extent to which this can be done, competitive response?
(vi) Substitutionary locomotion (er, that means some sort of ongoing, sustainable investment into a innovative, disruptive new product that taps or creates a new market -- the best kind of growth)? Risk: valuation risk. excessive expectations, accounting risk? (Hmm, how about 'you stop innovating' risk?)
p173: the 2 handled pump --
ok, not a concept but an anecdote, a lovely one: about how the owners of the Comstock Lode Silver Mine in Nevada in the 19th C used rumors of huge reserves to boost their share price, sold shares, then flooded the mine to destroy market value, in order to buy shares back.
p200: Thinking about company turnarounds:
Easier turnarounds:
Intellectually honest management
Good capital allocation, declining levels of investment preferred
Robust core business
Long product lives/loyal customer base
Constrained supply side
Good balance sheet
Constructive fellow investors (bond and equity)
Properly constructed management incentives
Harder turnarounds:
Management in denial
More investment needed
Core business troubled
Short product lives/disloyal customer base
Supply side out of control (competitive)
Bad balance sheet
Stubborn investment constituencies
Counter productive incentives
p216 (last one, I like this a lot!) Goodhart's law -- akin to Heisenberg's Uncertainty principle -- 'when a measure becomes a target, it ceases to be a good measure' -- i.e. people will learn to game whatever quantitative system or valuation method they are evaluated by, so there will never be one single foolproof way to think about valuation.
December 31, 2021
I went on a bit of a 90s bull market binge this year. Capital Account is the first of two books collating the writings of successful London-based value fund Marathon Asset Management (the second more recent book, Capital Returns, is much better known. Capital Account is much older and generally more difficult obtain). Capital Account covers the tech mania of the period from 1993-2002, and is a fascinating first hand perspective of how Marathon experienced and navigated their way through this frenzy period.
On top of insightful anecdotes and lessons on avoiding folly, what Marathon is famous for is their capital cycle approach to investing. Sectors experiencing an upswing and a period of high returns tend to attract attention, investment, new entrants and competition, which ultimately leads to oversupply of capital, reducing returns, and the inevitable bust, following which consolidation and outflows of capital inevitably occur. Exploring the capital cycle framework through the lens of the 90s internet and telecom mania was a perfect case study of how to implement this toolkit in practice. This is particularly useful given the parallels to many sectors/themes today which are seeing a goldrush (electric vehicles, renewables, SPACs during 2020/early 2021).
Despite the letters in this book being written over two decades ago, Marathon’s investment tenets and principles are timeless.
This review (along with others) was also posted on my blog: https://punchcardinvestor.substack.co...
On top of insightful anecdotes and lessons on avoiding folly, what Marathon is famous for is their capital cycle approach to investing. Sectors experiencing an upswing and a period of high returns tend to attract attention, investment, new entrants and competition, which ultimately leads to oversupply of capital, reducing returns, and the inevitable bust, following which consolidation and outflows of capital inevitably occur. Exploring the capital cycle framework through the lens of the 90s internet and telecom mania was a perfect case study of how to implement this toolkit in practice. This is particularly useful given the parallels to many sectors/themes today which are seeing a goldrush (electric vehicles, renewables, SPACs during 2020/early 2021).
Despite the letters in this book being written over two decades ago, Marathon’s investment tenets and principles are timeless.
This review (along with others) was also posted on my blog: https://punchcardinvestor.substack.co...
January 28, 2015
Excellent and very realistic account of what happened during market mania and depression, you get a sense of living through their experience. Beats those investment books written by non-practitioners by a long way!
October 5, 2016
inspiring, especially the introduction part. Simple idea, powerful implication.
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