Capital Cycle Gauge
Is the sector over-investing or under-investing relative to demand?
The Capital Cycle Gauge measures aggregate investment levels across a sector to determine where it sits in the capital cycle. Returns mean-revert toward cost of capital — when everyone invests, returns compress; when nobody invests, returns expand. This is the Marathon Asset Management thesis applied systematically.
This lens asks: "Is the sector attracting too much capital, or has underinvestment created a setup for improving returns?" The key data is *aggregate* investment across the sector, not individual company capital allocation quality.
Signals Produced
Capital Cycle Position
CAPITAL_CYCLE_POSITION
Return Trajectory
RETURN_TRAJECTORY
What This Lens Catches
| Pattern | Example | Signal |
|---|---|---|
| Capital starvation | Sector capex declining 3+ years, aging infrastructure | UNDER_INVESTED |
| Balanced investment | Investment growing in line with demand, stable returns | BALANCED |
| Investment arms race | All companies raising capex/R&D simultaneously, returns declining | OVER_INVESTED |
| Speculative bubble | Massive VC inflow, IPO wave, unprofitable entrants, SBC exploding | BUBBLE |
| Return expansion | Margins and ROIC improving as underinvestment creates pricing power | EXPANDING |
| Return compression | Too many competitors chasing same market, margins declining sector-wide | COMPRESSING |
Analysis Stages
Aggregate Investment Measurement
Total R&D + capex + SBC as % of revenue across all constituents, 3-year trend
New Entrant Capital
VC/PE funding flowing in, IPO pipeline, startup landscape
Headcount & Productivity
BLS sector employment trends, revenue per employee across companies
Return on Investment
ROIC/ROE trends across the sector, margin trajectories, cost of capital comparison
Capital Cycle Phase Identification
Where in the cycle: early investment, growth, overinvestment, compression, shakeout, or recovery?
Required Sources
Must Have
R&D %, capex %, SBC % of revenue for each constituent; ROIC/ROE trends; margin trajectories
Internal (Archivist output)
CAPITAL_DEPLOYMENT and related financial signals from equity-level analysis
Internal (equity lens outputs)
Management commentary on investment plans, capacity expansion, hiring intentions
Seeking Alpha, company IR
Enhances Analysis
Sector employment trends, wage growth by industry
FRED (BLS series)
Job openings by industry — leading indicator of investment appetite
FRED (JOLTS series)
CPC-class patent filing velocity — R&D output intensity
USPTO PatentsView
Private capital flowing into the sector — new entrant pipeline
Crunchbase, PitchBook references
What This Lens Does NOT Do
- Does not assess individual company capital allocation quality (that is Capital Deployment at equity level)
- Does not produce company-level valuation assessments
- Does not predict timing of cycle turns
- Does not assess quality of specific R&D or capex programs
When This Lens Applies
Always applicable — Every sector exists somewhere in the capital cycle.