Never Sell the Gems

Running a concentrated value portfolio comes naturally to Charles T. 'Chuck' Akre, who explains key tenets of his investment approach: the three-legged stool. In this interview, he shares his wisdom about compounding machines and his investment philosophy.

You don't seem to sell your holdings anytime soon. Why don't you have sell targets?
Our strategy is to compound our capital at an above-average rate and at a below-average risk. The way we hope to do so is by identifying what we call our compounding machines. We know that periodically the market will both overvalue and undervalue the businesses we own. Let us talk about the case of them being overvalued. If the business model is intact and if people's behaviour is the kind of thing that we respect and if the re-investment opportunities and the historical record continue to be terrific, then we rarely sell something simply because it has become expensive.

The reason is that the really good ones are hard to find. Remember, that we run concentrated portfolios; we do not want to own lots of things. We want to own exceptional things, and the really good ones are hard to find. That is the reason that we often hold things for the very long period.

Will I be better off if I sold them at the top and bought them at the bottom? Of course! Am I able to tell when that is going to be? No. My life experience is that if the stock is at $40 and I think it is worth $25 and I sell it at $40 because I want to buy it back at $25, it trades down to $25.05 and then goes to $300 and I don't ever get my position back. Therefore, we are always trying to make sure that we own the compounders.

https://www.valueresearchonline.com/story/h2_storyview.asp?str=28096