From good to extraordinary

There are ideas that are quite simple but can completely reshape how we investors look at businesses. Margin expansion is one such idea. It seems almost too obvious at first – companies that make more money from the same rupee of sales ought to deliver better returns. Yet, hidden in this simplicity is a force that can shift us from merely good performance and extraordinary wealth creation. It is easy to fall into the comfort of growth stories that follow the industry curve, compounding steadily, predictably and acceptably. These are not bad businesses or investments. However, markets have a way of rewarding the extraordinary disproportionately. When a company manages to sustainably lift its margins, compounding accelerates. Suddenly, what looked like an ordinary growth story becomes an unstoppable force. Those who spot this inflexion point early can get carried long by this force. What makes margin expansion so compelling is that it isn’t an abstract notion; it reflects something real and consequent