Akre Capital Q3 Letter: the Plumber Approach To Value InvestingVW Staff
Akre Capital Management Third Quarter Letter To Shareholders
Both the third quarter and September of 2013 finished with a flourish for the Akre Capital managed accounts. For the first nine months of 2013, our composite net return was 20.8% vs. the market measured by the S&P at 19.8%. In both cases, the returns are welcome and outsized! Your individual return does not likely match the composite for reasons you know, which we are happy to discuss.
Since the quarter ended, our nationally elected leadership has created a kerfuffle by failing to reach an agreement on the budget. We have no idea what the ultimate outcome will be, but historically, a compromise of some sort has ALWAYS been reached. From our perch, the current stalemate is not added to the list of things which might trouble us. In fact, we don't currently have such a list. We do note that at some point in the future – maybe a year, maybe ten years – interest rates may rise. As a result, the direction of bond prices will almost certainly be negative. Holding long-dated bonds will likely have an unpleasant outcome.
As we continue to think about the future, we remain focused on identifying and owning businesses which demonstrate ample pricing power. Internally, we describe this as calling the plumber on a holiday weekend to fix the jammed toilet just before one hundred guests arrive for your party. When the plumber has worked his magic and everything is restored in the nick of time, it would be unusual for you to argue about his price. You just gladly pay it. We are always on the lookout for “mission critical” businesses with real observable pricing power. Pricing power is always desirable and we believe it will be especially useful as our country “resolves” its massively large level of indebtedness!
We like to remind you that the better you understand how and why we invest your account as we do, the more likely you will remain reasonably calm in times of distress or uncertainty. We explicitly do not have any insight relating to “timing” the market, nor do we mean to suggest that we know what lies ahead of us in the market. What we know for certain is that on a daily basis the majority of the businesses you own are growing in real economic value per share!
We often remind you to keep us fully apprised of your circumstances, so that we position your account accordingly. We are always happy to hear from you, so call or come visit us.