Edward Chancellor quote

Via the book Capital Account:

The turnaround of General Dynamics [from 1990-1993] and its dramatic share price performance illustrate two key aspects of the capital cycle approach to investment. First, shareholder returns are not necessarily determined by whether a company’s sales are rising or falling, nor whether the market in which it operates is growing or shrinking. Rather, the most important determinant of share price performance is management’s ability to allocate resources efficiently. If a company achieves a higher return on reinvested profits than the market has expected, then its shares will rise, regardless of what happens to turnover. Secondly, during the early 1990s General Dynamics benefited from the decline in competition in the US defence industry, as capital was withdrawn from the sector and businesses consolidated. This illustrates the second axiom of the capital cycle, namely that profitability is determined primarily by the competitive environment or the supply side, rather than by revenue growth trends. It is better to invest in a mature industry where competition is declining than in a growing industry where competition is expanding.