Every day is a learning day – Chuck Akre

Chuck Akre

Chuck Akre of Akre Capital Management was on Patrick O’Shaughnessy’s Invest Like The Best podcast. After listening to this twice in one day. I’ve taken the pleasure of transcribing a fair amount of the podcast, which I will post after this. In this post I will share some takeaways and my favorite quotes.

Some Takeaways

One of the things that’s very clear is Chuck believes in asking questions, asking simple questions. Or as he says in the podcast, have imagination and curiosity. Ask these questions: What does that mean? What does that tell you? Why is that? What business are they in? What does the business do? What’s going on?

In short: seek truth and seek an understanding. But don’t get lost in the weeds. Keep things simple. And by simplifying, try to understand the big context. The big, slower moving context.

Frequent readers will quickly guess my favorite quote: “Every day is a learning day.” I like to say “never stop learning” or, if you prefer positive language, “always be learning.”

Every day is full of opportunities to learn something new or reflect on a story or personal experience and extract new meaning. Don’t be stubborn in your thoughts. Keep and nurture an open mind.

Chuck Akre has clearly done a lot of thinking and reflecting. The podcast is full of insightful stories and lessons. Listen here: Chuck Akre – The Three-Legged Stool – [Invest Like the Best, EP.135] – Patrick O’Shaughnessy

Chuck Akre quotes

“Every day is a learning day.”

“I spend a lot of time reading, that’s how ideas bubble up in my universe.”

“We’re not smart enough to dance with all the dances.”

“Imagination and curiosity are what’s hugely important. We’ve discovered things over the years purely by being curious. And continuing to keep involved in the search process to find these exceptional businesses.”

“We usually use free cash flow return on owner’s capital.”

“Our experience is once a guy sticks his hand in your pocket, he’ll do it again.”

“If we own exceptional businesses, one of the hardest things to do is not sell them.”

The three-legged stool:

1. “Leg one is the quality of the business enterprise.”
2. “Leg two is the quality and the integrity of the people who run the business.”
3. “Leg three is what is their record and opportunity for reinvestment?”

(Business model) + (People model) + (Reinvestment model)

“Once we have all those things in place then we just aren’t willing to pay very much for these businesses.”

“Find a company with above average returns. Ask: What business is it in? If it’s above average for the business, then they are in a different business. Goal is to find out what business they are in.”

“If you read any research from Wall Street, and we read very little, there is no one who talks about that, who talks about the rates of return they are earning on their capital.”

Signs in Chuck Akre’s office:

“Everything should be made as simple as possible but no simpler.”

“The bottom line of all investing is the rate of return.”

“Follow your passion. And read like crazy. And be curious, about everything.”

“I’m always looking for ways to understand pricing power, because pricing power is key.”

“It’s a rare occasion where the CEO articulates an idea where he shows he understands the idea of compounding the economic value per share.”

“You only need to be right in your investment decisions once or twice in a career. Once or twice in a career. And the challenge is how do you identify that.”

[Talking about his clients’ capital]
“They’ve done well so we’ve done well.”

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Naval’s How to Get Rich (without getting lucky)

Reproduced in full below. This is easily one of the best modern pieces of advice, probably on par with Kiplinger’s  “If” and Ehrmann’s “Desiderata”, though not as poetic. Follow @naval on twitter. The original threaded tweet.

Seek wealth, not money or status. Wealth is having assets that earn while you sleep. Money is how we transfer time and wealth. Status is your place in the social hierarchy.
Understand that ethical wealth creation is possible. If you secretly despise wealth, it will elude you.
Ignore people playing status games. They gain status by attacking people playing wealth creation games.
You’re not going to get rich renting out your time. You must own equity – a piece of a business – to gain your financial freedom.
You will get rich by giving society what it wants but does not yet know how to get. At scale.
Pick an industry where you can play long term games with long term people.
The Internet has massively broadened the possible space of careers. Most people haven’t figured this out yet.
Play iterated games. All the returns in life, whether in wealth, relationships, or knowledge, come from compound interest.
Pick business partners with high intelligence, energy, and, above all, integrity.
Don’t partner with cynics and pessimists. Their beliefs are self-fulfilling.
Learn to sell. Learn to build. If you can do both, you will be unstoppable.
Arm yourself with specific knowledge, accountability, and leverage.
Specific knowledge is knowledge that you cannot be trained for. If society can train you, it can train someone else, and replace you.
Specific knowledge is found by pursuing your genuine curiosity and passion rather than whatever is hot right now.
Building specific knowledge will feel like play to you but will look like work to others.
When specific knowledge is taught, it’s through apprenticeships, not schools.
Specific knowledge is often highly technical or creative. It cannot be outsourced or automated.
Embrace accountability, and take business risks under your own name. Society will reward you with responsibility, equity, and leverage.
The most accountable people have singular, public, and risky brands: Oprah, Trump, Kanye, Elon.
“Give me a lever long enough, and a place to stand, and I will move the earth.” – Archimedes
Fortunes require leverage. Business leverage comes from capital, people, and products with no marginal cost of replication (code and media).
Capital means money. To raise money, apply your specific knowledge, with accountability, and show resulting good judgment.
Labor means people working for you. It’s the oldest and most fought-over form of leverage. Labor leverage will impress your parents, but don’t waste your life chasing it.
Capital and labor are permissioned leverage. Everyone is chasing capital, but someone has to give it to you. Everyone is trying to lead, but someone has to follow you.
Code and media are permissionless leverage. They’re the leverage behind the newly rich. You can create software and media that works for you while you sleep.
An army of robots is freely available – it’s just packed in data centers for heat and space efficiency. Use it.
If you can’t code, write books and blogs, record videos and podcasts.
Leverage is a force multiplier for your judgement.
Judgement requires experience, but can be built faster by learning foundational skills.
There is no skill called “business.” Avoid business magazines and business classes.
Study microeconomics, game theory, psychology, persuasion, ethics, mathematics, and computers.
Reading is faster than listening. Doing is faster than watching.
You should be too busy to “do coffee,” while still keeping an uncluttered calendar.
Set and enforce an aspirational personal hourly rate. If fixing a problem will save less than your hourly rate, ignore it. If outsourcing a task will cost less than your hourly rate, outsource it.
Work as hard as you can. Even though who you work with and what you work on are more important than how hard you work.
Become the best in the world at what you do. Keep redefining what you do until this is true.
There are no get rich quick schemes. That’s just someone else getting rich off you.
Apply specific knowledge, with leverage, and eventually you will get what you deserve.
When you’re finally wealthy, you’ll realize that it wasn’t what you were seeking in the first place. But that’s for another day.

What is a Variant Perception?

Michael Steinhardt, in his book No Bull: My Life In and Out of Markets, defines “variant perception”:

I defined variant perception as holding a well-founded view that was meaningfully different from the market consensus

Understanding market expectation was at least as important as, and often different from, the fundamental knowledge.

Having a variant perception, a well founded one, is likely to lead to returns in excess of the market. It’s a view that is counter or at least partially counter to the market consensus. This implies a dislocation in the market between expectations and reality.

A couple famous examples:

  • Investment grade AAA-rated Mortgage-Backed Securities were much riskier than their AAA-rating implied.
  • A small computer company’s music player would be successful.

“One of the best rules anybody can learn about investing…”

“One of the best rules anybody can learn about investing is to do nothing, absolutely nothing unless there is something to do.”

Jim Rogers

I have to remind myself about this frequently. I have a tendency to want to be seen as “active” and “doing stuff”.

Many great investors talk about the importance of doing nothing. For example, Jesse Livermore said it was his “sitting tight” that “made the big money for [him].” In this case, he likely means letting the winners run, instead of taking a profit too soon. I’ve found ‍true compounding occurs when I hold onto, or even press, my winners.

It’s important for me to remember, in investing, “doing nothing” is a decision and sometimes a good one.

But what does “doing nothing” mean?

Let’s invert first. “Doing something” in investing means putting on trades, taking them off, adding hedges–the “more visible parts” of the investing process. (Hint: it’s called overtrading for a reason.)

What are the “less visible parts” to the investing process? For me they are: reading, doing research, writing, expressing my views, or actively searching for views that conflict with my own.

When I find myself wanting to be active, instead of turning to trading more frequently, I remind myself to focus on the less visible side of my process.

JimRogers-DoNothing-longhedge

LongHedge is where I try to turn the “less visible” parts of my investing process into a more visible part. Although it is mainly for me, I hope others can find value here. You can support by following, liking and or sharing this article with your friends!