Beware the Illusion of High Valuations

Buying small companies at low valuations and later selling them at much higher public market multiples creates a deceptive appearance of value, potentially masking underlying issues. Many of these businesses struggle to reinvest their earnings effectively, limiting growth opportunities. Consequently, while they may seem like lucrative investments, their actual worth may not support such high valuations when market realities are acknowledged. Constellation's reinvestment strategy can enhance returns, but the fundamental limitations of the acquired companies persist, highlighting a potential risk of significant devaluation in the future.