After listening to the new podcast with Chris Mayer and Drew Cohen, one key point Meyer mentioned stood out to me.

He discussed how he’s not entirely comfortable owning super high-margin businesses; this was brought up in the context of Evolution Gaming whose stock has struggled more recently and margins have come under pressure.

This insight got me thinking about a broader point - beyond margins.

One concept that I believe is crucial to understanding long-term business success is the formula of …

ROIIC (Return on Incremental Invested Capital) multiplied by the reinvestment rate

… which could arguably be considered one of THE most important formulas in investing.

However, I’d suggest expanding on this formula to:

ROIIC x reinvestment rate x durability of that reinvestment rate

This brings an important nuance into play. Many businesses can initially generate a high ROIIC, but without strong and durable structural advantages, that success may be short-lived.

The long-term compounding rate is likely to decrease over time, as competitive forces erode any excess return.

Therefore, businesses with lasting competitive advantages, and maybe businesses with returns and margins that can be considered more "middleground" as Mayer put it, are better positioned to maintain high reinvestment rates and decent, yet sustainable compounding returns.