AKRE CAPITAL MANAGEMENT’S “THREE-LEGGED STOOL”
We strive to concentrate shareholder capital in a limited number of extraordinary businesses. The three components to this analysis are business, management, and reinvestment. When we discover businesses demonstrating excellence in each leg of the stool, we refer to these businesses as “compounding machines”. We aim to purchase shares at a reasonable valuation upon entry or addition.
Business
- Identifiable, sustainable competitive advantages
- Enduring, predictable high return on invested capital
- Pricing power in excess of costs, inflation protection
- Easy to understand
- Strong balance sheets
Management
- Management with exceptional skill, integrity, and passion
- Treat shareholders like partners
- Indifferent to Wall Street's short-term focus
- Compensation rationally determined
Disciplined Reinvestment
- Pattern of disciplined reinvestment
- Expensive opportunities to reinvest free cash flow* organically or through acquisitions
Compounding Machine
*Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base.
