Not All Reinvestment Is the Same: How Two Companies Reinvented Growth Strategies
Long-term investors are always on the lookout for businesses that can generate exceptional returns over time. Finding the next Amazon, Netflix, or Constellation Software is what every investor dreams of.
While many companies grow for a few years, only a select few sustain high growth for decades, continually compounding shareholder wealth. These businesses, often referred to as “compounding machines,” have one defining characteristic: they reinvest their earnings wisely and earn high returns on every new dollar invested.
Many companies reinvest in traditional ways—buying equipment, expanding into new markets, or spending on research and development (R&D) to create new products or improve existing ones.
However, SOME businesses have discovered unique reinvestment strategies that fit their specific business models. These reinvestment strategies may not seem obvious at first glance, but they are just as powerful—if not more—than traditional growth investments.
Before we dive into two fascinating case studies, let’s first establish the foundation:
What makes a business a compounding machine?
Why return on incremental invested capital (ROIIC) is the key metric to watch.
How companies typically reinvest—explained through the lens of an orange juice stand.
Once we understand these concepts, we’ll explore how Wise and IBKR have redefined reinvestment in their own unique ways.
