Mark Leonard: How About A Thought Experiment

In his 2015 letter to shareholders, Mark Leonard posed the following thought experiment:

How about a thought experiment? Assume attractive return opportunities are scarce and that you are an excellent forecaster. For the same price you can purchase a high profit declining revenue business or a lower profit growing business, both of which you forecast to generate the same attractive after tax IRR. Which would you rather buy?

It’s easy to go down the pro and con rabbit hole of the false dichotomy. The answer we’ve settled on (though the debate still rages), is that you make both kinds of investments. The scarcity of attractive return opportunities trumps all other criteria. We care about IRR, irrespective of whether it is associated with high or low organic growth.

You can read the entire letter here:

CSI 2015 Shareholder Letter