More Irrational Exuberance

06/04/2010 3:56 pm EST


Charles Akre

Managing Member and CEO, Akre Capital Management, LLC

Chuck Akre, a top value stock fund manager and the founder of Akre Capital Management LLC, shares his thoughts about the recent Berkshire Hathaway shareholder meeting. Chuck, you have been attending Berkshire Hathaway annual meetings now for 30 years or so, and you said when you first started, there were a few hundred shareholders; now there are 40,000. Why do keep attending, and can you tell us something new about Buffett?

Chuck Akre: Well, I do not know whether I can or not! You know, people say, “Why do you keep going?” You have been going a long time,” and first of all, the experience of Warren and his vice chairman, Charlie Munger, sitting on the stage and answering questions from shareholders for six hours or so is a unique experience in American business, and it is not likely to be repeated. So for that reason alone it is worthwhile. Secondly, the two men are extraordinarily bright, and they have a unique ability to distill any issue to its most important aspects and be able to talk about things in a simple, straightforward way. Thirdly, their sense of values comes through loud and clear, and so from my perspective, it is sort of a renewal to hear many of the lessons that I know repeated.

Q: In the book The Snowball, the biography, they really talk about how he assembled this empire, sort of a cash-generating machine that feeds on itself and uses the miracle of compound interest to just get more and more profitable as time goes on. Can you talk a little bit about that cash generating?

A: Absolutely. I mean, first of all, the bottom line in all investing is rate of return, and in our own firm, we look to compound our shareholders’ capital in above-average rates with what we believe is a below-average level of risk. Buffett once remarked, or often has remarked, as it relates to compound return, "You either get it or you do not." I must say that I was sort of slow to the party. It took me quite a while before I really understood the value of compounding. Importantly for those of us who manage money, Buffett did something very early in his career that we are all envious of in some degree, and that is that he found himself a way to manage a permanent pool of capital. He does not bear the risk of people withdrawing money or bad market doing.

That source of capital pool is always there. That is attractive. So in his case, because of the structure he has, it is an even better deal, and that is that all of the owned businesses simply send in the cash. “Send the check to Omaha” I think is his advice. If things are not going well, you will hear from us, otherwise, just send the check to Omaha. So he is constantly adding cash to his portfolio.

And being able to take advantage of opportune times that say, volatility provides us in the market. I might add a company that we own that we talk about is Markel Corporation (NYSE: MKL), very much the same way. It is an insurance company. It has premiums coming in all the time, so it is able to continuously add to its investment portfolio as well.

Q: Thank you.

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