Capital Cycle

why do investors and corporate managers pay so little attention to the inverse relationship between capital spending and future investment returns? The short answer is that they appear to be infatuated with asset growth. Corporate expansion fires the imagination of both managers and shareholders. This mistaken fetishism for growth is reflected in the historic poor performance of stocks with higher growth expectations (higher valuations). Behavioural finance suggests that investors (and corporate managers) are prone to overconfidence when it comes to making forecasts. As Yogi Berra says, "It's tough to make predictions, especially about the future." As we shall see, this is especially the case when it comes to predicting future levels of demand

eg. PSU banks, Infrastructure as a sector is flawed investment theme, 

The main behavioral explanation for value stocks' long-run outperformance is excessive extrapolation by investors of multiyear growth rates. In reality, growth mean reverts faster than the market expects, making growth stocks more likely to disappoint.

eg. Why does Indian market prove otherwise? Growth has almost always worked out well for investors

Focus on supply than demand:

A rash of IPOs concentrated in a hot sector is a red flag; secondary share issuances another, as are increases in debt. Conversely, a focus on competitive conditions should alert investors to opportunities where supply conditions are benign and companies are able to maintain profitability for longer than the market expects. An understanding of competitive conditions and supply side dynamics also helps investors avoid value traps (such as US housing stocks in 2005–06).

eg. Microfinance in the Public markets and Tech startups in the private space

 The value/growth dichotomy is false. Companies in industries with a supportive supply side can justify high valuations

eg. How many branded consumer goods companies are coming up everyday?