Why the capital cycle approach is a powerful framework for long-term investing

Article reviews Edward Chancellor's book "Capital Returns," which advocates the capital cycle approach to long-term investing. The framework argues that focusing on industry supply dynamics, capacity expansion and capital allocation offers superior returns compared with relying on demand forecasts. Chancellor highlights behavioural biases such as competition neglect, base-rate neglect and extrapolation bias that cause investors to misjudge supply-side changes.