Chuck Akre: Above Average Returns and a Legendary Framework

Charles T. “Chuck” Akre is not the first successful fund manager that a newcomer to the world of investing is likely to start out studying. But where other fund managers and investors might boil down their investment style and philosophy to more or less buying good companies at good prices, Akre and his framework described as The Three-Legged Stool has enabled him and his firm's fund, which started in 2009, to compound investors' returns at over 13% per year.

Join us as we take a deep dive into the life and work of Chuck Akre, his firm, and his views on investing as a whole.

• Chuck Akre has taken an unconventional path when compared to other fund managers and successful investors.

• His firm, Akre Capital Management, isn't located in NYC or any other major financial hub, instead opting to conduct their work from the tranquil Virginian countryside

• His framework lays out clear rules and conditions about what makes a good investment and has changed very little over the years.

• The importance of keeping a long-term perspective on one's investments and capitalizing on good buying opportunities.

When discussing successful famous investors managing large sums of money or running a fund, their alma mater is almost always mentioned in passing and without raising the readers' eyebrows. Bill Ackman went to Harvard, Joel Greenblatt studied at Wharton, and the list of alumni from the US's most prestigious business schools in the upper echelons of the finance sector is more or less endless. While going to these types of schools and earning a degree in business, management, or a similar field is certainly going to make life a whole lot easier for someone looking to make investing a career, Chuck Akre proves that it’s not the only way.

Instead of earning a degree from a prestigious business school, Akre started as a pre-med student before eventually switching to a major in English. When he started as a stockbroker in the summer of 1968 he didn't have a single sliver of knowledge or experience in business or investing.

But Chuck found the business and investing world incredibly fascinating, and he quickly set out to acquire as much knowledge as possible. Since Akre knew nothing about the field, he started from scratch and in the same place that so many others have: asking himself what makes a good investor and investment. The way he acquired his knowledge was to read anything and everything about investing that he could get his hands on.

One of the most influential works that he read during this time was John Train's The Money Masters, which among many other things includes a long piece about Warren Buffett and his view on businesses and the characteristics of a great investor. Another, and perhaps even more influential book to Akre was Thomas Phelps 100 - 1 in the Stock Market which opened his eyes to the power of compounding one's capital. Besides these two titles, Akre developed a large interest in business biographies to better understand the behavior of leadership at companies, and it's a genre of books he still enjoys today.

Chuck joined Johnston, Lemon & Co. as a stockbroker in 1968, and he would go on to stay with his first firm for 21 years. During his time with the firm, he worked his way up from being a stockbroker to various managerial positions. These included the management of various branches, assets, and research. In 1989, he would go on to found Akre Capital Management, and four years later, the firm began operating as part of Friedman, Billings, Ramsey & Co. But it was in 2000 that the modern story of Akre Capital Management began in earnest. Chuck took the company private and moved the day-to-day operations to a new headquarters, and instead of opting for the top floor of a skyscraper in Manhattan, he chose to situate the firm in the quaint rural town of Middleburg, Virginia.

Akre Capital Management is a firm that operates various funds, aiming to " provide above-average returns at below-average risk.” This is something that sounds like a stellar plan, but as anyone with experience in investing will know, is far from easy to achieve. To meet the goal, the firm has to identify businesses that earn above-average rates of return on its owner’s capital. To do this, Chuck and his firm have found a framework that has allowed them to do just that. This approach has changed very little since the firm was established and Chuck, who likes to put his money where his mouth is, has a sizable investment of his own money placed in the fund.

Another interesting aspect of Akre Capital management is that it does not look for price targets for a specific share, or as Chuck himself says “we’re not looking for the exit on the way in”. When the firm invests, it plans to hold the company in its portfolio for the foreseeable future. The firm also keeps its focus on the growth of the economic value per share over time. As the plan is to hold for five, ten, or even fifteen years ahead, a company missing estimates for one or two quarters doesn't automatically mean it should be sold. Instead, it can create opportunities to buy shares at attractive prices. Some of Akre's most publicized and well-known historical investments include American Tower, O'Reilly, and MasterCard.

His stellar returns aside, Chuck Akre has probably become most known for his investment framework. “The Three-Legged Stool” as he likes to call it has been his way of approaching investing since he started up his firm, and is something well worth studying, regardless of investing style. This article about the Three-Legged Stool takes a deeper dive into the ideas presented above, and in detail describes how every aspect of the framework can be applied in practice.

The world of investing and money managers can sometimes be a very black-or-white place, and returns never lie. Performing and becoming the best of the best in the world of investing is something that takes a lot of dedication and hard work. Instead of focusing solely on business and investing Akre takes pride in exposing himself and his colleagues to ideas and experiences outside of their line of work. Some examples of this are the office lunches he has hosted historically, where he invites successful people and experts within other fields than investing. Some examples include economists working with policymakers, experts on sustainability, leaders of charitable organizations, and more. In an interview with CNN in 2009 Akre explained his reasoning for this, with him being quoted as saying “We will still be bottom-up stock pickers, we just want to become better thinkers.”

Chuck Akre is living proof that it's possible to become a great investor regardless of one’s educational background or previous knowledge, as long as one is willing to put in the time and effort to read and learn. His Three-Legged Stool is a framework well worth studying in detail, regardless of investment style, and the view he has on long-term thinking is equally fascinating. While many things make his firm unique, the fact that it has been able to rely so heavily on a single framework since its inception is a testament to the robustness and validity of Akre's ideas.