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Chuck Akre

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2024-02-06
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2024-02-06
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  1. “Wow Well, that's probably personal, so I won't share that. But the willingness of people to make themselves available, whether it's me or somebody acting towards me or my family is incalculable in terms of its value to as a human being. So I spend a fair amount of my week every week trying to figure out what I can do to be useful to other people.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “Wife is having a hundred people to a party in two hours, and the toilets are stopped. You will pay that plumber whatever he asks as long as he can get there before the party. That's pricing power. So I'm always looking for ways to understand pricing power because pricing power is key. So think about that as it relates to MasterCard and Visa and all of these things. What's the source of their pricing power? They say we have our notions and we don't talk about it anymore. And you'll notice that the company never talks about it.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “Follow your passion. That's the most important thing. And read like crazy and be curious about everything. I make the joke about the fact that back in the Clinton administration there was a guy who lived at the Jefferson Hotel who ended up being caught by a relationship with a Dominatrix. And so I used to joke about the Dominatrix business model. She could price however she wanted to price and well, that sort of stuff. So it's relating real life experiences. I say my example of pricing power is as follows. It's a holiday weekend, a big holiday weekend.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “That's a function of the tax code, actually. The tax code permits you to make donations of an easement on land which restricts future use. The language in the tax code, federal tax code, says that these restrictions are in perpetuity. And as I say to people, I don't for a minute believe that that will occur. Times will change and people will figure out ways to move around those. So that means you just have to do the best you can while you're here. But that's true in all things. And then in addition to that, I sit on the board of the main chapter of the Nature Conservancy, which does land conservation on a very large scale, and all of the things that come from that, which have to do with in Maine as well as other states in the United States and around the world, restoring fish to their native rivers and that sort of stuff by taking out dams or putting massive amounts of forest into hydrocarbon exchange mark and that sort of stuff, all those things of that nature, which improve the quality.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “We're just great believers in the open space and the beauty of open space and its value to our populations. So the primary way that we've been involved are putting conservation easements on our farms and land and that”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “Of his life and then after he died when they got enamored to Wall Street and they started listening to the analysts and the bankers about how they needed to raise the prices for everything and add way more seats and they've gone through all that, had the downside of that experience in the last session, have taken seats out and that sort of stuff. So he was way more customer oriented in that business than his successor who happened to be his daughter and that sort of stuff.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “First of all, early on he wasn't taken with Wall Street, and he did things that he thought made sense for his business. And for example, in chatting with him one time, they had races like the Daytona 500, which would sell out. But he knew that his customers were, as he would call them blue-collar workers. And so there was sensitivity to pricing of the tickets. And so he would raise the price of the seats maybe once every four or five years, and he would raise them quite modestly. But he had that pricing power, and it actually related the old days like the Washington Post, which kept the price of the paper at a buck or fifty cents or something like that when everybody else was raising price. They had a lot in their pricing power that they could exercise but didn't because they thought it made a difference. At any rate, he would do things like that. And he would add seats in a very modest way so that he didn't have a lot of unsold seats. And that changed at the company towards the end.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “all kinds of things that caught him with his pants down. He was a thief. We had the goods on him. And so he settled with us for, I think, probably three times something he's going private private. And a sealed settlement that was not to be disclosed. And so that was the example of a guy putting his hand in your pocket. That company got reconstituted. It was a successful business, is today. There's another public company that he was involved in principal shareholder in, a successful public company, but I've never invested in any of them because I knew that man's behavior. In my experience was he'll do it again in ways that I don't anticipate. And we've had that happen in a private investment where the people behaved in ways which we never expect and we think that are both incompetent and dishonest. And that happens periodically.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “in North Carolina law, minority shareholders had a right of dissent. I had a lawyer in North Carolina who was a brother-in-law of a lawyer in Alexandria, and he ended up getting me into a class action suit that formed. And we went all the way through discovery.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “Equipment and the race cars were better. I said, Well, that's pretty interesting, you know, and I was drawn to the idea of entertainment business as an unconstrained possibilities and so on. So I came back to the office and I was a stockbroker at the time and went through the standard poorest corporate records and found all the companies that were involved in horse racing and dog racing and car racing and all of that sort of stuff to try to see if I could figure out if there were some interesting businesses there. And there were three companies involved in automobile racing tracks, stock car tracks, not Formula One or anything like that. And those were a company called Charlotte Motor Speedway, International Speedway, and Atlanta Raceway. And I invested in Atlanta and Charlotte, didn't invest in International Speedway. Long and complicated story, but Charlotte Motor Speedway, there was a man who owned 70% of it and he made him take it private after I'd started buying the stock in the market. And it was North Carolina-based company, and I thought that it's going private price was insufficient.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “An English major, a premed major, a person involved in the investment management business, they're all the same. And people, what do you mean? I said, well, they're about collecting data points and forming judgments around them. It's all the same. So reading business biography, you learn about people's behavior. And sometimes you see it through the eyes of a biographer that maybe has a little rose tint to the glasses and sometimes you see it through just pure actions and sometimes you experience it. And so I told you that back in the 70s and 80s we had this experience with International Speedway and we were investors in that business for over 10 years, haven't been in a long time for a number of reasons. In the summers, I had gone up and spent some time in Maine in the summers, and I'd gone in the weekends into a little dirt track, watched the stock car racing. And I noticed the dirt track over a period of years got better and got paved and it got boxes and it got better.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  12. “Now in the partner here who was doing the work on it will tell you pretty clearly he's concluded that it was a mistake to have sold it at the time but we didn't know that at the time and it was a reasonable thing that we did based on what we knew that happens.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  13. “So just as we describe the business model, the people model, and the reinvestment model, when something goes wrong with one of those, it causes us to reexamine. And we're just like everybody else. We're just human and we're fallible and we don't always get that right. We had a case where we sold our holdings in Ross stores four or five years ago, and they had gone through a change in the CEO. The new CEO was not made available to the investing community. There were some other issues going wrong at the time, and we felt uncomfortable. We moved on and took a profit and so on. It turns out that was a mistake, and it was a mistake where we didn't have, that is, it was a mistake in that the companies continued to do well and we weren't part of it. They had an interesting and a good business model. Retailers are hard as a generalization, and we've done well in several retailers, but we concluded.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  14. “And did I properly guess that eighty cent stock, $179 stock was going to be worth $209 or $10? I had no idea. But we've continued to buy it along the way and accordingly our clients, shareholders, partners have prospered as a result of that. And as we say, they've done well, so we've done well.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  15. “two, and we bought stock at seventy nine cents and stuff. We still own something in partnership. My wife and I still own some. And there's a great example of Thomas Phelps. Here's a really important notion. You only need to be right in your investment decisions once or twice in a career, once or twice in a career. And so the challenge is, how do you identify that? And so that's why in this whole issue of the three-legged stool, and the reason we have four stools up there is they're all very different. They come in different sizes and shapes. It's an important notion. Visual construct. How do you figure out which ones are going to still be doing that ten or twenty or thirty years down the road? Which ones today have high returns and so typically you want something that's small so the market cap of American Tower in October of 2002 was $200 million or something like that today as opposed to $100.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  16. “And they were scrambling to sell assets to continue to raise money relatively small amount of money, but it was coming due. And we were in the middle of this two-year downturn and three-year downturn in the market that from top to bottom had fallen more than 50%. And we went and saw Steve Dodge, who was the CEO, founder, and CEO in September, and the stock was two, and he bought more stock on the way down at 11, that sort of stuff. And we understood from him, and he told us as well as he told anybody to talk to him, that he could manage that problem through private equity world. It would be expensive, but he could manage it. And so the shareholders' risk was not a risk of the company collapsing. He was a risk of massive dilution because he could pay that off in cash or in shares at their option. So it could be taken care of. But the risk of it to the shareholders was massive dilutions in the stock got as low as sixty cents on october 3rd or whatever it was of two.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  17. “Had come down to five bucks a share and we owned stock. We had owned stock when it had been spun out of American radio in October of'99. And it had come out at $15 or $16, spun out to its shareholders, and got as high as $60. And then by March of 2002, It was And then by September 2002, it was two, and on their balance sheet, they had about $6 billion of debt, but they had, I think it was two hundred million that was coming due in November of 2003. This is fall of 2002, and they couldn't use their bank lines to pay that off because taking money from bank line to pay off funded debt. That wasn't possible.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  18. “Was a great example. And so we still own stock, some of our separate accounts and our partnership that cost us 80 cents or 79 cents, $209 a share today. It was a great business. I mean, the incremental margin on a tower once it said, let's just say two tenants, it might be 1.8 or might be 2.1, but two tenants. The incremental margin on that business is north of 90%. And everything telephony in the 80s was levered 10 to 20 times. And American Tower was levered 16 times fully vertically integrated. They add steel companies and they had tower erectors. They RF engineering had everything. And when everything telephony started to fall off the cliff in March of 2000, that's when they started to fall on a cliff. American Tower had to scramble to deleverage itself. It had in 2002.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  19. “And that's how you tell. Right. And so that's why rate of return is what drives us. Did I understand that implicitly 30 years ago or 50 years ago? No. Stuff that is right in front of your face sometimes doesn't reveal itself in terms of its importance for a long time. I carry a little coin in my pocket that says I'm a charter member of the slow learners. And that's in fact the case. I'm not a teenager.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  20. “This is what the owner's capital is today, and this is what it was a year ago, and it's higher than that by X percent, and so on.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  21. “They would solve for all your problem. That has not happened. And the really brilliant mathematician like James Simons and his Billy Renaissance capital, I don't have any idea how many inputs they have, but my guess is it's probably in the tens of thousands of inputs, which is a staggering way, and they've clearly been able to do something that's truly exceptional and perhaps Radalio falls in that category with a little different approach and so on. We don't have any of that skill. We don't think in those terms we think about it in this very old-fashioned concept about businesses. How do you tell if a business has been successful? You've seen in my talks about that where you ask the audience that and they raise their hand. They say, well, the price goes above, fair enough. Suppose it's not a public company and you have no price discovery. How do you tell? And I say on the back of the envelope, you go to your account and he said, well.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  22. “Well, so we're not smart enough to dance with all the dances. We've been involved in data centers in the past. We're not in them now. I wouldn't say that that was necessarily the correct decision. But we explore and we learn and we observe and sometimes we, for example, we think a lot about the businesses that we've sold. And was that the right decision? And we've concluded in a number of cases that it was not. But who does it perfectly? You talk about being a quan and so on, and I'm saying if this business were susceptible to purely quantitative approach, they wouldn't need me and you just would punch the button.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  23. “really and truly, each of those demands a denser network of towers to increase the reliability of lack of drops and so on. And the tower companies which are host to antennas become that same toll booth. If you want a growth in wireless communications, they go through antennas, which are mostly on towers. Sometimes they're in buildings and that sort of stuff, but the tower companies are in that business as well. And so they act as the toll booth in the growth of wireless communication. It's staggering.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  24. “Absolutely They made another acquisition last week in Africa and bought one of the players in the oligopoly of independent tower companies in the African continent. And so while each new tower is itself a succinct individual asset, the collection of 55,000 towers around the world now, they all look similar. And my notion about the tower companies is that they find themselves in a position that I describe as being much like Microsoft in the days of the growth of personal computer. If you wanted to have a personal computer, you ended up having to go through Microsoft because they owned the operating system. And it was a toll booth. If you want growth in wireless communication, and as we've gone from 1G to 2G to 3G to 4G to 5G, and by the way, 5G is very much of a mirage. People are talking about it and being out there on the table today. It's not going to be here for years.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  25. “Higher rates more quickly, you needed to have businesses that were compounding their capital. And so we talked earlier about MasterCard and Visa and the enormous returns. There's no way that they can reinvest that cash to earn those kinds of returns than anything else. And so they buy in stock and they pay cash dividends and it grows and that sort of stuff. But it's a less efficient way for us to compound our capital than if they were able to reinvest it all and get those same kind of rates of return.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  26. “There was a man who'd been a editor at Baron's magazine and I think he'd written for the journal as well who became an investment counselor in Boston and his name was Thomas Phelps and he wrote a book called a hundred to one in the market in nineteen seventy two and that was a book that to this day remains inspirational to me, fundamental to me in terms of thinking about the issue of compound return. He didn't ever explicitly talk about compound return, but clearly what his message was he outlined in round numbers three hundred fifty public companies that between nineteen thirty five and nineteen seventy one you could have bought and made a hundred times your investment by nineteen seventy two and so what you infer from that is that well the only difference is really the rate of return the rate at which it was compounding that's the only difference so that meant that if you wanted to have”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  27. “And so interesting then, if you looked at the annual report on balance sheet, there's no debt, but when you read the notes, they describe the equity as being 73% of capital. What's the rest of it? Deferred revenue. What's deferred revenue? It was cash in the safe. Now, I mean, you talk about people running a conservative balance sheet in a conservative business. That's about as conservative as you can get. Discovering that about the behavior of the people, those experiences stick with you in terms of how people behave.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  28. “What cache is in the safe? Well, the money we've got for the Daytona tickets that we've sold in advance of the race. We put them in there because we don't earn it until the race is run.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  29. “And it's a long story, you've probably read about how I got involved. But at any rate, at the time the company had two and a half million shares outstanding, the family that had founded that was called the France family and Bill France Jr. led the company. It was a strong and dynamic leader and they went through a period of time in the seventies or 80s where they hired a CFO where they'd never had one before. Francis wife Anne had always just handled the books and so on. And there's an apocryphal story that says that once they'd hired the CFO and they had him in the office and they were walking him through the stuff, Anne or Bill said, so shall we tell him about the cash? Mrs. New CFO's cash, what cash? Well, the cash that's in the safe”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  30. “We paid for O'Reilly as a result of that. At any rate, in the terms of capital allocation, after they paid off that short debt they'd used because they were generating a lot of cash, they said, well, we're not going to be able to make any other major acquisition that won't be a Hart Scott Rodino problem. And therefore, they changed their capital allocation and they began to lever up the company and buy in shares, which they had never done. They've now, since that period of time, bought in 40% of their shares and are reasonably leveraged now. It was a really intelligent capital allocation decision by the management and the board at that time, which is highly unusual. We've all seen boards that were rushing out to buy in their shares when they were at peak valuations and all kinds. That's not what they were doing. So that was a really interesting capital allocation. The other side of that goes back to the late 80s where I got involved in a company called International.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  31. “The other competitor had a much, much larger exposure to the do-it-yourselfers. So when you were serving the do-it-for-me group, the independent garages, time is money, and they had a car on their lift. They needed the part right away because the lift was out of commission if they had a car on it waiting for a part. So the timeliness of the delivery parts was critical. And that means that they had to have a denser distribution network and so on. That was pretty interesting. And you've seen the others sort of trying to move into that direction. After they did that, come to O'Reilly had very little debt. They'd taken on, actually in 2008 because of the recession, they were unable to borrow all the money they'd anticipated for that acquisition and end up having to issue stock. We owned ten percent of CSK at the time. And so we got a reasonable share of O'Reilly's stock, which we still own, and it's 12 or 13 times.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  32. “So we own a company called O'Reilly Automotive, and it's also part of an oligopoly, and the oligopoly really basically includes O'Reilly Auto Zone. And O'Reilly acquired a company called CSK Auto Parts, I'll say close to 10 years ago. It was. In fact, it was 0708. CSK had a huge presence on the West Coast where O'Reilly had none, presence in the middle part of the States and southern part of the States, very little exposure in the Middle Atlantic and Northeast, but it gave them a much greater national footprint. And after that, and they did a superb job in the logistics of integrating all of the CSK stores into the O'Reilly network, remerchandising them's old business. In O'Reilly's business also was about 50% to the do-it-for-me people, the independent garage business, as well as the do it.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  33. “And as you might expect, some of them say, well, the price of the stock goes up or we hit our earnings target or we delivered in all the things that the board asked of us and so on. It's a rare occasion. The CEO articulates an idea that shows that he understands the idea Compounding the economic value per share. You stand back and say, well, why is that so? And the answer is that they're not trained to do that. They're trained to run businesses. They're not trained to think about compounding the intrinsic value per the economic value per share is really the single most important thing.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  34. “Well, they don't have a screen in their office showing them the price of the stock. And there are lots who's do. And sometimes you find it in the lobby of a company and sometimes you find it on the CEO's desk. That doesn't interest us. We've had instances where principals and companies have called us up and said, why are you selling our stock? Once we recover from that affronting question, if in fact we have been selling the stock, which may be the case, or we may have sold it all, we say, well, actually, that was clearly the right decision because we don't want to be partners with people who are concerned about those things running their business. Their focus is on the wrong thing in our judgment. And so this is an interesting exercise. One of the questions that we like to ask is of a CEO particularly, is how do you measure whether or not you've been a success at running this business?”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  35. “our key tool for everything, and we try to look at everything from a top down basis. So we were talking about the fangs and modern technology. We say that as a generalization, all of that is about changes in distribution of all kinds, whether it's information or cars or Amazon starting with books and then to selling everything in the world and then to selling cloud services, it's all about distribution, distribution of saving information, that sort of stuff. And so that's looking at things in a simple fashion. Let's try to make it as simple as we can and understand the big context what's going on because we're all at risk of getting caught in the weeds of what's going on and that's misleading.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  36. “You go, so lots of very bright people can build really intriguing, complicated ways to figure out why something is cheaper or expensive. And we try to keep things as simple as possible. If you read the one right behind you,”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  37. “where they sell everything for a dollar, dollar tree nothing was more than a dollar. The two competitors, dollar general and family dollar and family dollar was still run by the founding family basically made itself available for sale and Dollar General had had lots of private conversations with him over a period of years and then it sort of became an auction and Dollar Tree had a lower bid but won the bid. Family Dollar selected them. Both companies, Dollar Tree and Dollar General simply had to bid on that. If it's a three-company oligopoly going to two, they both had to bid on it. It was going to cost Dollar Tree basically to double the number of stores. How many opportunities you get to that once?”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  38. “And it comes in at $1.72, and the remark is, they missed by one. So we call it beat by a penny, missed by a penny. That's the syndrome. And that gives us opportunities periodically because the markets behave in ways that we happen to think are irrational relating to something like that. And so a name that's been in the news for four years now and had some controversy around it is Dollar Tree, where we own a big stake. The Dollar Store business was really in the oligopoly in the United States with three major players, family dollar, dollar tree and dollar general, Dollar General had gone through and been taken private and brought back public by KKR. Dollar Tree had not been headquartered in Chesapeake, Virginia. Now on their basically their third CEO in their history. There is a business that we through experience have learned were terrific retailers and terrific at logistics building and managing seven thousand.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  39. “They're probably jamming every expense they can think of into the income statement to try to reduce how good the margin is that they're showing. And then three, we spend time trying to figure out what's causing that. We think we know and we've quit talking about it. So I'm not going to talk to you about it. But I mean, if you read any research from Wall Street and we'd read very little, there is no one who talks about that, who talks about rates of return that they're earning on their capital. I mean, no one does. Because Wall Street in general has a completely different business model than we have. Our business model is to compound our capital. Wall Street's business model generically is to create transactions. Logically. Well, what's the best way to create a transaction, create what we call false expectations? And what are false expectations? Well, the earning estimates. O'Shaughnessy is going to earn $1.73.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source

  40. “Well, so we try not to talk very much about the companies in our portfolio, and we certainly never talk about ones that are. Coming in or going out So, the issues are all the same. I mean, this is 2019, in March of 2010, we added our first position to MasterCard. And it was during the time of Dodd, Frank, and issues at Congress. And then more specifically about what became known as the Durban Amendment. And MasterCard and Visa were selling it ten or eleven times. And when you dove into the numbers, we discovered that the operating margins returns in capital were there's not a word in English language that's superlative enough to talk about them. I would just say that you could cut the margins at Master Garden Visa in half twice, and you'd still be above average for an American business. So clearly something extraordinary is going on there. What does it mean? I ask this question rhetorically around the office. What does that tell you? Well, it tells you Are there a big target on their back? Everybody wants some of that B tells you that”

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  41. “Every day's a learning day, and we have to figure out which of those businesses of any of them are truly attractive and are not subject to rapid changes in technology or governmental intervention or retaliatory issues relating to different countries in different parts of the world and that sort of stuff.”

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  42. “Well, so the first difference is that in the last 10 or 15 years, the overall returns of all businesses have gone down and they've gone down in my mind, in our judgment here, because of the lower level of interest rates, the pervasive lower level of interest rates. And while it doesn't, you don't necessarily, A equals B plus C, it is a pervasive effect and it's caused the returns on all businesses to be lower in our judgment. The second thing is that the way some of these businesses have earned their returns are ways that were new to us and we didn't catch on to them. So our returns in the last few years, which have been continue to be well above average, have been done entirely without any of the fangs or any of those businesses, without any of them. And it's just because we weren't smart enough and quick enough to figure them out, that sort of stuff.”

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  43. “and imagination and doing that sort of stuff and making the mark of Marty Carver. And as I say, his father had founded the business and his father had sort of gone off the deep ends before this. He'd bought an enormous yacht, an underfoot yacht, and started going out with Las Vegas showgirls and all kinds of things like this because the business has been very successful. And it was an interesting experience. You have to be curious and open to those things that have them work out. And in the day, the business really ran into trouble expanding in some Western European countries where they land into labor issues and so on. And so we moved on after a while. We owned it for a long time, though.”

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  44. “Shared the wealth, as it were, with their dealers instead of passing it all on to their shareholders at that time. And it created a huge dealer loyalty, and the dealers were able to, they did very sophisticated things about identifying the cost of fuel to a trucking operation if they had a bandag tread on their tyre as opposed to some other kind of tread. And truck tires and bus tires are built and designed to be retreaded two or three times. Most people don't know that. Automobile tires are not. Truck and bus tires are constructed that way. At any rate, so they had built this huge loyalty network of independent dealers who continued to use the Brandag name and product in their business instead of national tire companies. And as a result of that, the company had much higher returns on capital than other tire companies. And so that was an issue of curiosity and observation.”

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  45. “and distributed them to dealers on the basis that they had to use the money in the business. They couldn't go buy new Cadillacs, but they could build a new store. And so a principal competition with the major tire companies, all of whom had company-owned stores. All the Bandang stores were franchised. So they were dealing with independent dealers who, as they say, got there at six in the morning and closed at 9 at night as opposed to the employee dealers who got there at 9 in the morning and left at 6 at night. And these people were motivated by their own profits and whatnot. And so Bandag very wisely”

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  46. “Our goal is to figure out what business it's in. So we went out to see them and a fellow by the name of Marty Carver was running the business that had been founded by his father. He was in Muscatine, Iowa. And I got the meeting and Marty had his feet up on the desk and was eating an apple during our interview. And so you got a different feel right off the bat. And their business was retreading truck and bus tires. It's something I really knew nothing about before then. And we had been through the oil embargo in the United States in the early seventies where prices of gasoline went through the roof. And one of the principal components of tire molding and recapping is course of petroleum based. And so it had caused all of their dealers to have a huge increase in the cost of doing business. And when prices began to come back down, Bandag took those savings”

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  47. “So this was actually in the days when I was at a firm called Johnston Lemon in Washington, DC, and it was a brokerage firm and I was a principal in the firm and we had some interns around and I took an inbox that was full of things I'd tear out of magazines and papers and put in a box and gave them to this intern and said, look through there and see if you find anything interesting. And a week later, he came back and he said, well, here's a really interesting company called Bandag, and why is it interesting? Well, it had very high returns on capital and done well for a long period of time. And I said, well, great. What business is it? And he said, it's the entire business. And I looked at the returns in the capital and said, well, it's clear it's clearly not an entire business. What do you mean? I said, well, take a look at the returns and then take a look at the returns of all the other tire businesses you find and see how they relate to each other. And Bandags was three or four times what they were. I mean, I said, obviously it's not in the tire business. It's in another business.”

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  48. “Our 30th anniversary for Auckland Capital Management and did some presentations in one of our partners did one. It was entitled The Art of Not Selling. And it's truly very hard to do. In fact, it may be one of our great assets is our ability to not sell”

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  49. “Is what is their record of reinvestment and what is their opportunity for reinvestment? And so we have all those things and we say once we have those in place, then we're just not willing to pay very much for these businesses. Those are the three legs of the stool. People remember that, but they get confused by this. They say, oh, yeah, you're the three stools, aren't you? Or something like that. It was just a shorthanded way for us to sort of visually say one, two, three. This is what's important to us. And our experience is that if we own exceptional businesses, one of the hardest things in the world is to not sell them. All businesses have hiccups in their business operations, and all businesses have things that occur that's unplanned for or thought about, but not necessarily expected, and that's life. I mean, nothing is perfect. Nothing is Jack Welsh's 20% a year take it to the bank long after he's left, we found out that much of that was a house of cards. And so we just had a”

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  50. “That have had high returns on the owner's capital for a long time, and we spent a lot of time trying to figure out why that's so and what's caused that. And then what's the runway ahead of them look like? Is it broad and long? Do they still have the opportunity to earn hybrid above these above average returns on capital and so on? And then we want those businesses to be run by people who've demonstrated they're clearly great at running the business because they've achieved this, but also who, by our observation, treat us as partners, even though they don't know us. You've read enough times, I'm sure, but I have an expression where I say that our experience is once a guy sticks his hand in your pocket, he'll do it again. And so we just have no reason to go there. I mean, it's human behavior. We're constantly finding people whose behavior is antithetical to our interest. And so leg one is the quality of the business enterprise. Number two is the quality and the integrity of the people who run the business. And then third leg.”

    2024-02-06 · Invest Like the Best · Chuck Akre - The Three Legged Stool - [Invest Like the Best, REPLAY] · IDENTIFIED FROM THE TRANSCRIPT · source