Independent Thinking by Chris Cerrone

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How is your process different?

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Most investors know how to attain knowledge about a company: read annual reports, attend trade shows, visit with management, and study key financial metrics. For many, investment decisions follow closely thereafter, usually supported by colorful presentations and complex financial models.

Our approach, by contrast, stresses the importance of wisdom by subtraction. We endeavor to look past the non-essential details and tune out the often deafening noise. We want to identify the “essence” of each business. So, for instance, what is it about MasterCard that enables them to generate after-tax margins approaching forty percent? Why have the Rales brothers been so successful buying and fixing businesses? How has Markel managed to compound book value per share at fifteen percent for the past twenty years despite falling interest rates and a competitive underwriting environment?

It is a challenging process but the rewards are worthwhile. We can far more easily assess the relevance of new business developments once we are armed with our understanding of what really matters and what does not. Quarterly earnings reports, for one thing, become much less of an event.

We’re always surprised (and thrilled!) that we are nearly alone in this respect.

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Why Middleburg?

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Middleburg has one traffic light. A few of us live on farms. We like to say that makes everything a bit simpler. We are both philosophically and geographically removed from Wall Street. Yet we are only a short drive from Washington and its three international airports. The best of both worlds, we’d say.

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Can you tell us about the culture of the team?

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We’re a small team of curious, open-minded, and passionate investors. We are energized by what we do and how we do it.

One defining aspect of the culture, in my opinion, is that we allow ourselves the space and time to think. We manage a concentrated portfolio with low turnover. We believe we will be in great shape if we can uncover a new investment idea or two each year. There is an emphasis on quality over quantity.

We are very focused on the compatibility of our team. That has a couple components. First, we are all “true believers” in our investment strategy. It is our North Star. That is important because periodically we will do less well than we would like and it is crucial that we stick to our knitting. Second, each of us should be prepared to change the water cooler when it is empty, or bring in the trash bins. I happen to be well over six feet tall so I have been designated “chief light bulb changer.” It speaks to humility, an important attribute both in life and in investing.

We all feel privileged to work in this environment, and we believe the culture has had an important hand in the results we have achieved on behalf of our clients.


The investment examples included herein have been selected based on objective, non-performance selection criteria, solely to provide general examples of the research and investment processes of Akre Capital Management. The investment examples should not be construed as an indicator of future performance. The information presented above should not be considered a recommendation to purchase or sell any particular security. There can be no assurance that any securities discussed herein will be a part of any portfolio or, if sold, will not be repurchased.


About the Author

Chris Cerrone is a Partner at Akre Capital Management.

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