Want to turn small investments into massive wealth?
Chuck Akre, one of the greatest investors of our time, mastered this by finding compounding machines.
Here’s how you can spot them too👇
1. Compounding Machines
Chuck Akre is known for finding compounding machines.
These companies generate extraordinary long-term returns.
His philosophy? Focus on businesses that grow steadily over time. Let’s break it down. 🔍
Chuck Akre is known for finding compounding machines.
These companies generate extraordinary long-term returns.
His philosophy? Focus on businesses that grow steadily over time. Let’s break it down. 🔍
2. Akre’s Framework
To find compounding machines, Akre uses The Three-Legged Stool:
1️⃣ Great Business
2️⃣ Led by Outstanding Management
3️⃣ Great Reinvestment Opportunities
To find compounding machines, Akre uses The Three-Legged Stool:
1️⃣ Great Business
2️⃣ Led by Outstanding Management
3️⃣ Great Reinvestment Opportunities
3. Great Businesses
Invest in businesses with a strong competitive advantage.
Look for:
- High & predictable ROE
- Strong Free Cash Flow (FCF)
- Pricing Power
- Solid Balance Sheet
Invest in businesses with a strong competitive advantage.
Look for:
- High & predictable ROE
- Strong Free Cash Flow (FCF)
- Pricing Power
- Solid Balance Sheet
4. Trustworthy Management
Numbers aren’t enough. Leadership matters too.
Ask:
- Does management have skin in the game?
- Are their interests aligned with shareholders?
- Do they focus on long-term value?
Numbers aren’t enough. Leadership matters too.
Ask:
- Does management have skin in the game?
- Are their interests aligned with shareholders?
- Do they focus on long-term value?
5. Growth Potential
A great company with great management needs reinvestment opportunities.
Find businesses that can reinvest free cash flow into high-return projects.
This is where compounding accelerates.
A great company with great management needs reinvestment opportunities.
Find businesses that can reinvest free cash flow into high-return projects.
This is where compounding accelerates.
6. Measuring Growth
Track ROIIC (Return on Incremental Invested Capital) to measure reinvestment potential.
ROIIC = (Change in NOPAT) / (Change in Invested Capital)
Higher ROIIC = better growth = faster compounding. 📈
Track ROIIC (Return on Incremental Invested Capital) to measure reinvestment potential.
ROIIC = (Change in NOPAT) / (Change in Invested Capital)
Higher ROIIC = better growth = faster compounding. 📈
7. Rare Finds
Companies that meet all three criteria are rare:
- Great Business
- Great Management
- Great Reinvestment Opportunities
But when you find one, you’ve discovered a compounding machine.
Companies that meet all three criteria are rare:
- Great Business
- Great Management
- Great Reinvestment Opportunities
But when you find one, you’ve discovered a compounding machine.
8. Akre’s Results
Since 2009, the Akre Focus Fund grew 421%, vs. 275% for the S&P 500.
That’s a CAGR of ~15%.
A $1,000 investment in 2009? Now worth $5,214. 💰
Since 2009, the Akre Focus Fund grew 421%, vs. 275% for the S&P 500.
That’s a CAGR of ~15%.
A $1,000 investment in 2009? Now worth $5,214. 💰
9. Big Winners
Akre’s biggest wins:
Mastercard
Moody’s
American Tower
Visa
Constellation Software
All perfect examples of his framework.
Akre’s biggest wins:
Mastercard
Moody’s
American Tower
Visa
Constellation Software
All perfect examples of his framework.
10. Final Thoughts
You don’t need risky, high-return investments to achieve extraordinary results.
Find great businesses with trustworthy management and reinvestment potential. Then, let compounding do the work.
You don’t need risky, high-return investments to achieve extraordinary results.
Find great businesses with trustworthy management and reinvestment potential. Then, let compounding do the work.
That's it for today. Did you like this?
Find compounding machines in this list of 100(!) quality stocks: compounding-quality.kit.com/afee7ce56b
Find compounding machines in this list of 100(!) quality stocks: compounding-quality.kit.com/afee7ce56b
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