The 3R Playbook: How Multibaggers Are Really Made 🚀

Spotting, underwriting, and holding compounding machines with Runway, Returns, and Reinvestment minus the hype. 🎯🧠

Oct 07, 2025

If “multibagger” is the destination, the map is surprisingly simple: Runway → Returns → Reinvestment. I call it the 3R Playbook. Find businesses with a long runway (lots of space to grow), high returns on capital (each dollar invested produces many more), and the ability to reinvest those dollars at similar economics—again and again. Do that for long enough and the math does the heavy lifting. 🧮

We know what we are talking about, just take a look at oure Multibagger Portfolio:

See the full Multibagger Portfolio

Below is a focused, practical guide to spotting (and holding) these rare compounding machines.

Why Multibaggers Happen (and Seem So Rare) 🌱

Compounding is nonlinear. It feels slow, then sudden. Most investors quit during “slow.”
You need time + discipline. Many sell at +100% and miss the path to +1,000% and beyond.
The market over-discounts durability. It loves flashy stories and underprices repeatability.

Quick compounding math: a 10× in 10 years requires ~26% CAGR. A 100× in 20 years? Still ~26% CAGR. Same engine, more time. ⏳

The 3R Framework 🔍

1) Runway (Can it get much, much bigger?) 🛣️

Look for structural tailwinds and low market penetration:

Big TAM but early innings. Penetration <20% is a green flag.
Category creation or expansion. New workflows, new habits, or new infrastructure.
Non-linear growth vectors. Geography, product adjacencies, new channels, pricing power.

Runway is often qualitative first: customer behavior shifts, regulatory tailwinds, platform transitions, data advantages. Your question: What unlocks the next S-curve? 📈

2) Returns (Is the core engine efficient?) 🏎️

You’re hunting for high return on invested capital (ROIC) and/or return on incremental invested capital (ROIIC):

Stable or rising gross margins (structure, not just a great quarter).
Lean working capital (negative working capital is a superpower 💪).
Operating leverage that shows up as margins scale.

Rule of thumb: if each incremental dollar thrown into the business returns many dollars over a few years, the engine is working.

See the full Multibagger Portfolio

3) Reinvestment (Can management keep feeding the engine?) ♻️

Great businesses fail if they run out of places to put money to work—or if capital is siphoned away:

High reinvestment rate (R&D, salesforce, capex, M&A that extends the moat).
Proven capital allocation (small experiments → bigger bets → systematized playbook).
Founder-led or owner-operator cultures often excel here. Not always, but often.

The holy grail is high ROIIC at scale for years. That’s where 10× becomes 50×. 🔁

Where It Shows Up in the Numbers 📊

Revenue growth that’s steady (not lumpy), ideally 15–30%+ for years.
Gross margins resilient through cycles (pricing power + moat).
Operating margin trajectory that improves as scale kicks in.
Cash conversion (free cash flow growth that trails revenue by a short lag).
Share count discipline (watch SBC dilution—acceptable only if ROIIC stays high).

Bonus signals:

Net revenue retention (NRR) > 110% in subscription businesses—customers expand 💚.
Unit economics that improve with scale (declining CAC, rising LTV/CAC).

Red Flags That Break the 3Rs 🚫

Runway illusion: TAM slides without real evidence of adoption vectors.
Returns under pressure: rising CAC, falling gross margin, bloated working capital.
Reinvestment gap: cash piling up with no credible plan or empire-building M&A that dilutes ROIIC.
Narrative drift: management changes the story every 12 months.
“Beat and raise” theater: optics improve while unit economics deteriorate.
See the full Multibagger Portfolio

Holding Through the “Boring Middle” 🧘

The toughest part isn’t finding it’s holding:

Build your thesis as a living document. Track 3R KPIs quarterly.
Pre-commit sell rules. E.g., thesis break (moat erosion), capital allocation break (ROIIC collapse), or culture break (incentives shift).
Size with humility. Concentrate as conviction rises and numbers confirm.
Use drawdowns to upgrade. If the engine’s intact, lower price = higher forward IRR. 🔄

Remember: multibaggers often spend 30–40% of their time below a prior peak while compounding silently underneath. Patience is alpha. ⏱️

One Last Bit of Math Magic ✨

Use the Rule of 72 to sanity-check the path:

At 24% CAGR, money doubles ~every 3 years (72 ÷ 24 ≈ 3).
That’s ~8× in 9 years, ~16× in 12 years, if the engine keeps humming.
Your job isn’t predicting quarters—it’s underwriting durability.

Takeaway 🎯

Multibaggers aren’t lottery tickets. They’re systems:

Runway gives them space,
Returns give them speed,
Reinvestment keeps the pedal down.

Master the 3R Playbook, and you’ll spend less time hunting narratives—and more time owning engines that compound quietly into something extraordinary. 🔁🚀

Thanks for reading. If you got any questions please hit me up.

Disclaimer

This publication is for educational purposes only and reflects personal opinions at the time of writing. It is not investment advice and not a recommendation to buy or sell any security. Past performance (including the >22% average annual return since 2005) is not a guarantee of future results. Investors should conduct their own research, consider their objectives and constraints, and size positions appropriately. Positions discussed may be held by the author and may change without notice.