Chuck Akre's Talk at Google: Three-Legged Stool Investment Construct

Chuck Akre of Akre Capital Management recently had a talk at Google about investing entitled "The Peregrinations of an English Major Trying to Solve the Investment Puzzle."

If you're unfamiliar with Akre, he focuses on finding long-term compounders and runs a somewhat concentrated portfolio.  Here's notes from his talk:


Chuck Akre's Talk at Google

- Reads voraciously to this day.  Cited one of the very first books he liked: The Money Masters.  Also noted that 100:1 in the Stock Market is the book he took the idea of compounding from.  Said he read The Intelligent Investor as well as business biographies.

- What makes a great investment?  "Rate of return is the bottom line of all investing."

- Looks at free cashflow return and focuses on valuation as the key to compounding; buy it right.

- How do they identify investments that will generate above average returns?  "We like to fish in the pond of high return businesses."  Asks: what kind of returns on capital?  What are the net margins?  Thinks an 'average' business returns high single digits.  Cites Mastercard (MA) and Visa (V) with 30% margins.  "What is it about the essence of that business that allows them to earn returns that cause them to have a big bullseye on their back?"

- Three-legged stool:  Their investment construct that lets them think in simple terms.  First leg is the quality of a business: a high return business.  Second leg is operations: want management to have skill and integrity (a demonstrated record) and treat investors as partners.  Third leg is reinvestment: would love the company to put cash back into the business if there's great opportunity.  Cited the book Dear Chairman (which we've reviewed here).

- "I have never been able to learn from other people's mistakes.  I have to make my own."

- Wants to be an investor in a business rather than a speculator in shares.

- His goal is to compound capital at an above average rate while incurring a below average level of risk.  Volatility is only a risk in the short run.

- Akre's separately managed accounts over 27 years have compounded at 12.7% versus S&P at 9.4%.  Also has a partnership that's done 15.25% versus S&P 9.2% and mutual funds that have done 13.2% annual.

- Mastercard: originally purchased in 2010 at around $22 with regulatory worries around Durbin amendment.  Business has fantastic returns, had a low valuation (13-14x at the time).  "Their returns are so high they can't possibly find a place to reinvest their money, so our compounding is diminished modestly because of that."

- Moody's (MCO): Bought in January 2012 at $39.  Any company that wants debt has to get a rating on it and it's basically an oligopoly: MCO, S&P (SPGI), and Fitch.

- Enstar (ESGR): Been involved for 10 years.  They buy insurance that's in run-off.  Paid 3 times book when he bought shares. 

- Quotes Einstein: "You should make everything simple as possible but no simpler."  "We cannot solve our problems with the same thinking we use to create them."  "The only source of knowledge is experience."  "Imagination is more important than knowledge."  That last quote is what's on the front of Akre's book:

- Two of his best investments (100 baggers): Berkshire Hathaway (BRK.A) and American Tower (AMT).  "Most of the time you can buy these businesses at reasonable valuations... sometimes you can buy them at a steal."

- On selling: "The most difficult thing to do in our business is not sell, if you're a long-term investor."

- Bought Visa (V) because they have concentration limits in their funds and were bumping into that with their stake in MA.  Did the same with SBA Communications (SBAC) as it relates to their AMT position.  Gaining more exposure to the themes via competitors since individual position limits kicked in.

Embedded below is video of Chuck Akre's talk at Google:



We've covered many other investor talks at Google, including:

- Howard Marks' talk at Google

- Michael Mauboussin's talk at Google

- Jim Grant's talk at Google

Chuck Akre at Capitalize For Kids Sohn Canada Conference

We're posting up notes from the Capitalize For Kids Sohn Canada conference that just took place.  Next up is Chuck Akre of Akre Capital Management who presented four case studies.


Chuck Akre's Sohn Canada Presentation

He presented four case studies of companies who have a successful capital allocation record and high returns on tangible capital.  Quickly outlined Danaher (DHR), Colfax (CFX), and Berkshire Hathaway (BRK.A), however no specific recommendations were given.  It should be pointed out, however, that CFX has seen quite the drastic sell-off recently and it has been one of Akre's top holdings for some time.

Be sure to check out the rest of the presentations from Capitalize For Kids Sohn Canada here.

Great Investors' Best Ideas Conference Notes 2013: Price, Akre, Gabelli, Pickens, Russo & More

Below are some brief notes from the 7th annual Great Investors' Best Ideas Conference in Dallas benefiting the Michael J. Fox Foundation for Parkinson's Research and the Vickery Meadow Youth Development Foundation.


Notes From Great Investors' Best Ideas Conference


Michael Price (MFP Investors): He pitched three ideas:  long Hospira (HSP), long Songbird Estates (SBD.LN) and long Dolby Labs (DLB).  HSP has seen value guys buying it, transitioning away from growth investors as the investor base changes.  The company has good free cash flow and he thinks the stock can hit $60.  His thesis on Songbird is a discount to NAV story (around 30%).  Dolby (DLB) has a ton of cash and no debt with huge royalty streams (80% of revenue).  As tablets and PCs continue to grow, they'll make money.


Chuck Akre (Akre Capital Management):  His picks were Moody's (MCO) which he likes due to its oligopoly position, solid return on equity and pricing power,  as well as O'Reilly (ORLY), the auto parts supplier which recently bought CSK Auto and the integration has gone well and now they're buying back shares.  His presentation also focused on how you should stick with your circle of competence and acknowledge when you're unsure of things. Focus on 3 things in a business:  growth of capital (high ROIC), good management, and solid reinvestment (how they used past FCF).  The price you pay is very important.


T. Boone Pickens (BP Capital):  He pitched Diamondback Energy (FANG) which he likes for its growth potential, no debt and a lot of cash.  He also likes Basic Energy Services (BAS) as excess capacity has been taken out.  He also touched on his picks from last year: National Oilwell Varco (NOV) which he still likes, as well as Pioneer Resources (PXD), almost a double and he likes the Permian basin acres (continues to like this stock as well).


Karen Finerman (Metropolitan Capital Advisors):  She pitched North Atlantic Drilling (NADL.NS) traded in Norway which was a spin-off from Seadrill (SDRL).  The spread between non-Norway rates and Norway rates is very big and many contracts already locked in.  She likes the cheap valuation, big dividend (potential for it to grow), says there's limited downside due to the backlog. There's also a catalyst with an IPO coming for a US listing and it won't be too dilutive. 


Tom Russo (Gardner, Russo & Garnder):  He pitched Nestle (NSRGY) and Berkshire Hathaway (BRK.A/B).  It seems like Russo always pitches Nestle when he speaks somewhere.  He's a global value investor and is looking for companies like See's Candies and invests for the long-term.  They have a lot of European companies in their portfolio and like market volatility as it provides opportunities to long-term investors.  The last major portfolio buys they made were AB Imbev (BUD) and Mastercard (MA) 3 years ago.


Mario Gabelli (Gabelli Funds):  He presented Cablevision (CVC) as a potential buyout candidate with John Malone (and Charter Communications) active and pushing for consolidation.  Will the Dolans sell CVC?  Argues that the company is worth up to $23 in a buyout, versus current levels of around $16.


Caroline Cooley (Crestline Investors):  She's focused on event-driven plays.  She specifically mentioned Macquarie Infrastructure (MIC) which is involved with infrastructure building, has a nice yield and could see it head higher.  It's undervalued because it cut the dividend in '09 and has limited sell-side following. says this story is probably in the middle innings.


Tom Gayner (Markel):  He pitched General Electric (GE).  He pitched the same stock at GIBI in 2007 when it was $40 and now the stock's at $25.  They still own shares and now have a $23 cost basis.


For more conference notes, we also posted up notes from Invest For Kids Chicago (Lasry, Eisman, Cooperman).

Chuck Akre on Judgment in Investing: Presentation from Value Investing Congress

Continuing our coverage, today we're posting up more notes from the Value Investing Congress.  Below are notes and the slideshow presentation from Chuck Akre of Akre Capital Management.  He gave an insightful talk on using good judgment in investing.  We've also posted a separate post with his bull case for MasterCard (MA).


On Judgment in Investing


The following notes are courtesy of Kyle Mowery from GrizzlyRock Capital.  Akre quoted Will Rodgers: "Good judgment comes from experience and experience comes from bad experience."

He learned to ask the questions: what makes a good investment? And what makes a good investor?

Good judgment is output of neural network and pattern recognition of what you have come to know.  Ask CEOs how they measure their success of company.  Akre suggests "the success of investment is realized as the per unit increase of book value per share."

Recommends "100 to 1 in the Stock Market" written by Thomas Phelps (former WSJ writer & editor).  Phelps' qualifications are as follows:  small, relatively unknown, unique product that does something better/cheaper/faster.

Have courage. Have patience.  Thinking big and compounding capital: most investors don't think on large enough scale.  $10mm a penny doubled daily for 30 periods.  Recommends "Money Masters" by John Train.

Warren Buffett: understandable, generate cash, high asset turns, owner oriented management


Buffett's 6 Qualities of Good Investors

1. Animated by controlled greed and fascinated
2. Patience
3. Think independently
4. Have security and knowledge without hubris
5. Accept when you don't know things
6. Flexible on types of businesses

Train adds 4 more: 10-15 years of practical experience, genes, perfect intellectual honesty, and avoid distractions.

Look for low teen ROE.  Overconfidence bias is a huge risk.  Malcolm Gladwell's talk on the recent financial crisis: failure comes from competence and overconfidence.  Essence of study people overly believing marginally more information.  But this doesn't improve the accuracy of judgment but does increase the confidence of one's predictions.  "Less is more."  "Value is in simplicity."

This is just one of our posts on Chuck Akre's talk.  We're also posting up his bullish stance on MasterCard (MA).

Be sure to click here for other presentations from the Value Investing Congress.

Chuck Akre's Presentation on MasterCard: Value Investing Congress

Continuing our coverage, today we're posting up more notes from the Value Investing Congress.  Below are notes from Chuck Akre of Akre Capital Management.  We've already posted up Akre on using good judgment in investing.  Below is his bullish case for MasterCard (MA).


Investment Idea: Purchase MasterCard (MA)

- Payment network, global GDP summation of transactions.  Royalty business on growth of consumer spending worldwide earning small piece of trillions of transactions across the world. 45% FCF return over last 5 years.

- Requires little capital to grow. 5 years was $680mm capex while after tax NI increase $1,900 over the same time (2002 to 2007).  Pricing power.  People: new CEO is solid. 

- Cash is 85% of world's transactions and MA will benefit from the shift to payments.  37% FCF margins in 2011.

- Management like share repurchase over dividends.  Could repurchase billions annually without levering up.

- ACH is banks system but not handle large number of small transactions rather built to handle few large transactions.


Question & Answer Session

Why prefer MA to Visa (V)? US domestic debit transactions, $0.42 interchange fee - Durbin suggestion to $0.11 per transaction (ended up at $0.22).  MA had mid-teens exposure to US while Visa had much more.  Market Folly note: A previous issue of our Hedge Fund Wisdom newsletter has an in-depth analysis of Visa.

The above notes are courtesy of Kyle Mowery from GrizzlyRock Capital.  Be sure to click here for other presentations from the Value Investing Congress.