Reinvestment Opportunities & Legacy Moats
This is a good article about investing in compounders vs. companies with legacy moats. It nicely summarises a number of important investment concepts.
One of the ways to compound wealth is to own companies that have a long runway of high-return, internal reinvestment opportunities. Starbucks has been a good example of such a company and we believe Panera has similar attributes, but is at an earlier stage of its development. Unfortunately, such companies tend to be relatively rare and are sometimes hard to identify.
In the absence of high internal reinvestment opportunities, owning a company that is managed by aligned “master capital allocators” with demonstrated records of success over many cycles is probably the next best thing (e.g. Danaher/ Colfax/ Jarden/ Platform/ Onex/ Brookfield/ KKR/ Markel etc.). Ideally, they are run by operators who are relatively young and have a long runway themselves to make accretive capital allocation decisions.