In his recent interview with Value Investor Insight, Chuck Akre discussed his stepping down from running the Akre Focus Fund at age 78, his successful approach to investing, and his thoughts on buy and sell prices. Here’s an excerpt from the interview:
Question: It’s always been a bit difficult to pin you down on how you set buy and sell prices, but you’ve obviously been pretty good at it. Any advice to share there?
Akre: We have buy targets on everything we own. We know valuations don’t remain constant, but our basic premise is that we want to buy at a price where we reasonably expect as shareholders to earn the same rate of return that the company earns on its capital. It’s a mindset. We don’t care about the consensus.
We care about achieving an above-average rate of return by owning businesses that earn an above-average return on their capital and compound it over time. If you overpay, it diminishes your opportunity to do that.
We don’t have sell targets on anything we own. One of the hardest things for an investor is to manage the temptation to sell a business when the stock has gone up a lot or when it’s having a lull in its performance. It’s maybe particularly hard when you come from the sell side, as I did, where it’s always been and remains to be about creating transactions. I don’t care about transactions and want to have as few as possible. I like to point out that if you have an investment that has gone up 50 times, the next time it doubles it’s now up 100 times. Compound return is staggeringly powerful. I have some investments personally that are up 200,000%, and I still own them.
We try not to be influenced by outside noise, which is what Wall Street is all about. I’m not minimizing how hard it is sometimes to know whether external or internal changes in a business might mean something has permanently changed and you shouldn’t hang on. That’s very difficult. We’ve gotten it right mostly, but have also had some pretty spectacular misses.
Our entire process is built around identifying and buying businesses we can own for a very long time. Annual turnover in the Akre Focus Fund over the last eleven years has been in the low to mid-single digits, so we must be doing all right.
You can read the entire interview here:
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