Investment Process
The investment process developed and employed by Akre Capital Management is driven by several over-arching principles that are implemented through a three-step evaluation process, with a valuation overlay.
The driving principles behind our process are to:
- Select investment opportunities to preserve and grow capital.
- Develop a focused portfolio that seeks to identify 'compounding machines'.
- Invest for long term results, recognizing that volatility can create powerful opportunities.
The process we employ for evaluating and identifying potential investments (compounding machines) consists of three key steps:
- We look for companies with a history of above average return on owner's capital and, in our assessment, the ability to continue delivering above average returns going forward.
- Investors who want returns that are better than average need to invest in businesses that are better than average. This is the pond we seek to fish in.
- We insist on investing only with firms whose management has demonstrated an acute focus on acting in the best interest of all shareholders.
- Managers must demonstrate expertise in managing the business through various economic conditions, and we evaluate what they do, say and write for demonstrations of integrity and acting in the interest of shareholders.
- We strive to find businesses that, through the nature of the business or skill of the manager, present clear opportunities for reinvestment in the business that will deliver above average returns on those investments.
- Whether looking at competitors, suppliers, industry specialists or management, we assess the future prospects for business growth and seek out firms that have clear paths to continued success.
The final stage of our investment selection process is to apply a valuation overlay that seeks to ensure we pay reasonable prices for the companies we invest in.
Sell Discipline: We are often asked about our approach to selling holdings that we've accumulated. Two of the events that will lead us to sell or reduce our position in a holding are:
- We will sell if a company can no longer satisfy one or all of the steps in our evaluation process above.
- We will sell some or all of a holding if a new opportunity appears to offer more promise than a stock we currently own.
Mutual fund investing involves risk. Principal loss is possible. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual stock volatility than a diversified fund. The Fund invests in small- and medium-capitalization companies, which involve additional risks such as limited liquidity and greater volatility than larger capitalization companies.
