GEO Investing

Google Talk – Chuck Akre: “The Peregrinations of an English Major Trying to Solve the Investment Puzzle” [TRANSCRIPT]

What follows is a transcript from a presentation that value investor Chuck Akre conducted for Talks at Google.  You can watch the video here.

Interviewer: Saurabh Madaan

Hello everyone, I am Saurabh Madaan and welcome to another of our special value investing talks. We have a very very special guest today with us. He is investor par excellence. He searches for long-term compounders. But just speaking with him before this talk began, I can also tell you that he has a great sense of humor. So, I hope we get to see that in action live, as he asks you questions and you ask him questions. So, I am going to do a very very brief introduction.

Charles T. Akre, also known as Chuck Akre, is an American Investor, financier, and businessman. He serves on the Board of Directors of the Enstar Group. He is also the founder Chairman and CIO of Akre Capital Management, FBR Focus and other funds. Akre Capial Management is based in Middleburg, Virginia.

So, without any further ado, over to Chuck Akre.

Chuck Akre

Thank you, Saurabh.

So, I just want to clarify one thing. I have not been associated with FBR Focus Fund since August of 2009. And that was a fund that I ran previously, and before we started our own fund in September of 2009.

I just wrote down some notes, and the headline in the notes said, “The Peregrinations of an English Major in Search of the Investment Puzzle”. And Saurabh said that he was interested and the group would be interested in the whole way sort of I got involved in this and how it has evolved and I started out as what I call a know-nothing. I was a pre-med student and then an English Major and so I had not had a single business course of any variety when I started as a stockbroker in July of 1968.

So, your quick math can tell you how long I have been at this, a while. In Virginia, they say, “since dirt”.

And so, I had, in effect, really a clean canvas, as to where I should go and what I should do. And so, since I knew nothing, my goal was to figure this out, and the investment puzzle started out with what makes a good investor and what makes a good investment. And I read voraciously and still do, and in the early works that I read that were very important to me were books like “John Train’s – The Money Masters” . It was the first written story about Warren Buffett, other than a Forbes Magazine article and that sort of stuff, and actually, in that, Buffett outlines the only place that I have ever seen it. He gives the characteristics of a great business and the characteristics of what makes a great investor. And that was a very important book to me. I have read things like the “Intelligent Investor”, Ben Graham Wrote.

In 1972, I came across a book that was reviewed in Barron’s called “100 to 1 in the stock market”, and it was written by a Boston Investment manager. His name was Thomas Phelps. And what was interesting to me was that it really made me come around and focus on the idea of compound return. He never actually explicitly talks about compound return, but he identified roughly 350 businesses, public companies, that you could have invested in, beginning in the mid 30’s all the way up to 71, and made 100 times your money. And in fact, there were a couple instances where you would have made 100 times your money in just two or three years. A really quite extraordinary thing. The difference in all of those, of course, has to do with the rate of which you compound your capital. And so that helped me down that line.

And I also read, then and still do, lots of business biography, because it informs me about human behavior, how people behave in their business life and business word, and how that affects what they are able to do.

So, as I said at the beginning, the puzzle was, “what makes a great investor, and how do you identify this?” How do you identify a great investment, if, for example, you have a private company, you can’t just say, well, the price of the stock went up. If it is private, there is no public share price disclosure. So you know, the simple way to describe it is if the pile of money at the end of the year is bigger than at the beginning of the year, you know it has been successful. But if you had a business that had so much opportunity to grow that you invested all the free cash, and so you did not have a pile of money at the end of the year,  you invested it in initiatives to grow, you have to go to your accountant or your bookkeeper  or go to your CFO or whatever, and he says well, this is what your value was at the end of last year and this is what your value is at the end of this year, and that is how you know if a business is successful. And it is a really important idea because it just brings you back to the simple issue of rate of return. And so, not only how much has it gone up, but on an annualized basis, and then you have things you can compare it to.

So, on that issue about investors, what makes a great investor are one of the things you ask yourself, do you take undue risks? How do you define the risks? How do you tell have you lost a significant amount of money in an investment? Why do you think you have done that?

All of these are important as we develop our skills as investors, and as I said, I had the advantage of clean canvas. That is, I knew nothing when I came into the business, and I worked for a firm that, when I joined it in July of 1968, was the most important financial intermediary in Washington, DC. It had financed Geico. It had financed Marriott. It has financed all the other companies that were public in the Washington area. And the world was changing rapidly, as it related to the investment business and the brokerage business in the late ‘60s and early ‘70s. And this firm was not particularly well suited to deal with that, but they were financially very strong and it gave me an opportunity, as I say, to follow my own nose in that business. And that is how it all comes about.

So, when we get to the piece about what makes a great investment, I go back to the issue of rate of return. Sometimes, a great investment might be simply described as, well, it met my goal. That does not tell you anything. Rate of return, we say in our firm, is the bottom line of all investing, and that is a really important thing to think about. And so Saurabh and I were talking before this chat today about businesses that compound at 8% or 9%, and I said, you know, 8% or 9%, when you compare it to a one and half  percent (1 ½%) interest rate on the 10 year is pretty attractive, and everything is relative. But I think rate of return is hugely important. And so then I went to discover what the historical rates of return were in all different asset categories – stocks, bonds, art, real estate, oil and gas, collectibles, fancy cars, you name it. And when I was looking at this over, may be, 70 years now, or a 100 years or something like that, the data indicates that public companies in the United States have compounded at roughly between 9% and 10% a year. And that is better than all other asset categories, and it is unleveraged.

And so that causes me to ask another question, and that other question is, well, why is that so? Why isn’t it 3% or why isn’t it 16%? And I am not terribly mathematically inclined, and so I use the term that it correlates, but I don’t do that with a mathematical background. I am just saying I observe that 9%, 10% not too precise, is the approximates what these companies are earning on the shareholder’s capital. That is, we refer to it simply as ROE. We look a little bit more in depth, we are talking about free cash flow return, you know, subtracting maintenance, CAPEX and that sort of stuff on the owner’s capital, the capital employed.

And so I go from there to posit the following. Our return is an asset will approximate the ROE over a period of years, given constant valuation  and given the absence of any distributions. So you all look up at me and you say, were you fool? Everybody knows you don’t have a constant valuation in the stock market. So we just work very hard to have an attractive valuation at the start. And you know, as it relates to compounding your capital, your opportunity for a higher rate of compounding is enhanced by a lower valuation at the start. I mean it’s just real simple.

And I have a little bit of an arithmetic proof of that, if you are interested. You take a $10 stock with a $5 book and $1 worth of earnings. So it is 10 times earnings, it is 2 times book, and it is at 20% ROE. And you apply that to the company and see what happens to the stock price. So you add that dollar’s worth to that 20% ROE, you add that dollar to the $5, you have a $6 book. Two times book is $12. You have a 10 times earnings. By the way, it is $1.20 in earning now, 10 times earnings is 12. So the stock price moves identically with the ROE in the business and on a constant valuation, absent any distributions, that sort of my very modest level of a proof of this notion. And it is a valuable notion that has served us well for a long period of time.

So then my next question is, well, how is it that we identify an investment which will likely lead us to an above-average rate of return? What are the characteristics and what kinds of businesses earn above average rates of return?

So we say very carefully that we like to fish in the pond of high return businesses. And so it makes it much easier for us to get our focus upfront, as we start with the notion of, what kind of returns on capital does that business earn? And just do something a little bit interactive here today, if I asked Surabh what is the typical net margin of an American Business today in percentage terms, what would you say?

Saurabh:  10% to 15%

Chuck Akre: So you think it is 10, may be a little bit above that, I would suggest that most people answer that it is probably in mid or upper single digits, all right?

And an investment that we own, I will come back around to later on, is MasterCard and Visa. And does anybody want to guess what the net margins of MasterCard, Visa are?

Audience: 30, 40.

Chuck Akre: There it goes. So they are in the mid-30’s, you know, and you could cut that in half twice, and at worst, it would be an average business. It is extraordinary. And I actually was talking to some people about this at the Munger meeting the other day, people who are well-schooled in the market, and good investors, and they had no idea. They just did not think of it that way. But that happens to be the way we think about it, because we have this little idea that our returns will be affected by the quality of the business and the rate at which it can grow the economic value per share.

And so, by the way, and MasterCard, I can come back to it, but it also then causes us to spend a lot of time trying to figure out, well, why is that so? What is it about the essence of that business that allowed them to earn returns that caused them to have a big bull’s-eye on their back, that everybody, all other companies want a piece  of a business that has returns that are that high?

So in my office, for some really unknown reason, I had on the desk an old fashioned milking stool. And it had come to me through my father, and it had come to him through a business partner of his. And on the top of this platform, it stands about that high, and it has three legs. And the first two are in the front and the third one is in the middle, in the back, and they are splayed. And a farmer who was milking his cow would grab that back leg and sort of just stick it up under his behind as he sat down to milk a cow. This was in the old days when they did it by hand. And so I was looking at that one day, and I thought, you know, that is actually a perfect construct for our notion about what make a valuable investment. We call it the three-legged stool. So if you looked at our material, our material is resplendent with these three-legged stools.

And the first leg of that – we just use this as a shorthand version of a construct to help us think in very simple terms about, well, how you find these great investments. So this first leg is this issue of a high return business, an exceptional business. MasterCard is an exceptional business. The average business earns, call it 8% after tax on earnings and MasterCard earns 34%. That’s exceptional. I mean, even if the average were 10%, would be exceptional. But I mean, MasterCard’s 35%, My god, that’s really incredible.

So, the first leg of the stool that we talk about is the quality of the business enterprise and we spend a lot of time going down this road that we call, what’s the essence of this business? What is it about the business that is causing this unbelievable rates of return to occur?

The second leg of the stool, then, goes into the operations. It has to do with the people who run the business and the shorthand version that is, we want them to have both skill and integrity, but what we say is that they have got a demonstrated record of being just killers at operating their business. But in addition to that , they treat us as partners even though they don’t know us. It’s a really important idea, because the reverse of that is somebody I heard describe the other day, is talking like Warren Buffett and acting like Ronald Perlman. And there are people out there, and you will find them, you will run across them, who do whatever they can to make sure that public shareholders don’t get their fair share. And we don’t want that. We want the same thing happens at the company level to happen at the per-share level. And these are wonderfully-skilled operators as well.

So first leg is the quality of the business. The second leg is the really the quality of the people who run the business.

And then the third leg is the issue that really helps create the value, and that is the reinvestment. And there is a book out, pretty current now, called “Dear Mr. Chairman” and it is about activists and companies, trying to change the behavior of companies typically, because of their reinvestment histories. And if a business has a great high return on the owner’s capital, we would love for them to be able to take all the free cash they generate and put it back into that business to continue to earn those high rates of return. Its way more efficient than paying us a dividend and all of those things, and that is what creates the compounding effect.

And when I get around to compounding, you know, I always use the example – you all have seen it on the web about the penny. And so I am going to ask this engineer right here. Would you rather have, in this hand, $750,000, or a penny doubled every day for 30 days. So you want the penny, right? So, instead of $750,000, I am going to make it $2 million in my right hand, versus the penny, doubled every day for 30 days. You still want the penny? So I figured that. How about $2 million and one? Well, I mean, this choice, it was $2 million before, you still took the penny. I am saying, how about if I make it $2 million and one?

Audience: That’s a lot of money. I would pick $2 million.

Chuck Akre: Yeah see? Now, who knows, right off the top of the head what that figure is?

Audience: $10.8 Million.?

Chuck Akre: Yes, It is $10.8 million. It is $10,737,000 or something like that and some change. And so that simple arithmetic is, it is a 100% return for 30 periods, you know? And that is the power of compounding. And so the really great thing about compounding, I tell people is, if you have a stock that has gone up 10 times, the next time it doubles, it’s gone up 20, and the next time it doubles, it’s going up 40 times. What? You know compound interest and compound return is just, it’s staggering. Actually, I have a correspondence with Warren Buffett about this, and he always has said, as it relates to compounding, either you get it or you don’t. And I wrote him a letter and I said, you know, that was not my experience. My experience was, I didn’t get it until I experienced it. And that goes to this whole issue of investing. I have never been able to learn from other people’s mistakes. I have to make my own. And so this process is designed to help me, and my colleagues and partners, have focus as it relates to how we are going to invest.

Contrary to that is every you see on the TV in the morning, on Squawk Box or all those things, and they have a different business model. And their business model is mostly supported by financial institutions and other consumer institutions who want your eyeballs. And if it is a brokerage firm that is sponsoring it, the definition of a broker is to create transactions, right? Your advertising people, they want to create transactions, right? And what is the best way to create a transaction in the brokerage industry? Create what I call false expectations. And the false expectations are the notion that XYZ company earns $1.37 in the quarter and the first thing that happens when they release their quarterly reports is, everybody comes out and says, oh, they earned $1.38. They beat by a penny. You better buy it. Or they earned $1.36, they missed by a penny. You better buy it. Well, if you stop and think about it, unless you are very adept at trading the market on a daily basis, it is a sure loser for you. It is bad for your economic health. And as it relates to trading the market on a daily basis, you know, there are very powerful computer algorithms out there using all kinds of information not available to most of us that are competing against you. So I just make that observation. We try very hard to be investors in the value of businesses, as opposed to speculators in the price of shares.

So now do you remember what a penny doubled every day for 30 years is? Don’t lose sight of that.

So we tell our clients and our prospective clients that our goal is to compound their capital at an above average rate, while incurring a below average level of risk. So let’s start with the back end of that. What do we mean by a below average level of risk? Well, the businesses we own typically have the following characteristics. They have more growth. They have higher returns on capital. They have stronger balance sheets, and frequently, lower valuations than the market. So on their face, they are less risky. It’s just, it’s observable. It does not have anything to do with volatility, because our belief is, volatility is a risk only in the short run. If you have an obligation in a year to buy a house or to do something like that, you probably don’t want to speculate with that cash that you have set aside for that. But if it is five years or three years, you have the ability, put that money to work and have it work for you. So volatility is not in our lexicon, basically, in terms of risk.

And we have already talked about what average is, and we think average is roughly high single digits, may be low double digits, and it has to do with what the overall interest rate environment is. And so there are lots of investors, Michael Steinhardt and people like that, who retired with records of very high rates of returns. But that was against the backdrop that, in January of 1981, the long bond, the 30 year treasury yielded 15 and 3/8% and prime rate was 21 ½ %. So it was in a backdrop in which rates were much higher than they are currently. So returns in all businesses are lower these days, and my guess is, average these days would probably be at the low end of that sort of high single digits number.

And because it is an average we are talking about, it doesn’t not mean that we will have a return in any given year that is better than that. It means, to us, over a period of 5 years or 10 years our returns are very likely to be well above that number. But I would say, observably, may be a third of the years in the last 25 we may be have done less well in than the S&P, which, we use that simply because it is available. We don’t care what indices people want to compare us to. That’s their choice. We spend no time thinking about that.

And so, I border on salesmanship here a little bit, and you can edit this out, Saurabh if you want. But the records that we have accomplished for our clients, I will give you some number very quickly, our separately-managed accounts which we have been doing for 27 years have compounded at 12.7%, versus the S&P at that period of time of 9.4%. So you know it was 330 basis points over the market, compounded annually for 27 years. We have a private investment partnership that has been around for 23 years and it has compounded at 15 ¼% , net to the partners, versus 9.2% for the S&P during that specific period of time. So 23 years, 600 basis points over the market. We have run two mutual funds in our life, the FBR Focus Fund and then subsequently, the Akre Focus Fund. Those two records combined, the number is 13.2%., versus 7.7%, 550 over the S&P for that period of time, 19 years, and then, simply the fund that we currently manage, the Akre Focus Fund, which has been in existence a little over seven years, it’s a 125 basis points over the market and the market has been 13 ½% in that seven year period of time. So I just say that, and I don’t print them for you, but I just say that to say this is the outcome of using this thought process in our investments.

Saurabh has asked that maybe we talk a couple of minutes about some examples. And going way back into the ‘80s and early ‘90s, we invested in a company called International Speedway Corporation. And International Speedway had the characteristics of, it was 12 times earnings. It was at 25%, 26% return on equity. It has an owner-operator who owned 60% of the stock, and it had a lot of growth in front of it, because it was the dominant racetrack owner in NASC AR racing. And they owned International Speedway and Darlington and Talladega. They went on to build some more. It’s not a very attractive business, in my mind today for a bunch of reasons. The man who ran it, Bill France, passed away. His daughter has taking it over. She doesn’t have the same skill set that he had. But during that period of time, we made 10 to 20 times our money on that business over more than 10 years.

Another company that was also in the entertainment related business was a company called Penn National Gaming.  I mean, there is a lot of serendipity about the way these things come out. An young man who was working for me at that time, talking to another investor, said to us, well, you ought to look at the 10-Q of this company called Penn Gaming, and we did. And Penn Gaming at that time, in Pennsylvania — Saurabh was in Philadelphia then, in Pennsylvania had five off-track betting parlors in Pennsylvania, and they were limited by licenses in the state. There were only a total of 23 in the state. So you had a high barrier to entry because of a regulatory issue. And what was interesting in this 10-Q was, the fifth off-track betting location that they built cost them $2 million to build it out. And they had $1.6 million of operating income in the first 12 or 14 months. I am saying, that’s not a bad business, you know! I took it upon myself to go meet the CEO. We talked about the importance of people. He was a real estate developer by background. His father has control of this old race track, Penn National Gaming, that had – because in Pennsylvania, they had given the licenses for the off-track betting to the legalized gambling arena, the racetrack, the horse racetrack business, and he was ambitious. And as a builder and developer, he borrowed a lot of money in his lifetime, and he told me that he had been able to avoid ever having his wife sing co-sign a loan. That’s a really important measure of risk understanding. And so I got involved, and it was after that, he bought another racetrack in West Virginia, and about an hour and half from Washington and Baltimore, and converted that into a Casino that now has 5,000 slot machines. And he went on become the largest non-Las Vegas and Non-Atlantic City Casino operator in the country. And it was another case where we made 10 to 20 times our money in our accounts. Again, this was a situation of high returns on capital, low valuation, major shareholder owner and operator and a low valuation. It was a huge opportunity for growth, going forward.

And then, in current times, we talked a little bit about MasterCard. Some things that are interesting about MasterCard. We purchased originally in February of 2010, and this when the Dodd-Frank discussions were going on in Congress after the financial crisis and more particularly about the Durbin amendment, which had to do with domestic debit transactions. The long and short of it is, we bought the stock at an average price of $22.20 in February of 2010.Today, it is $109, something like that. So we have made five times our money in six years, seven, you know, something like that. And the reason was that here is a business that had fantastic returns, as we have already talked about. It had a low valuation. The valuation in February of 2010 was something like 13 or 14 times. It was growing its free cash flow per share at a rate much faster than that, and we had a good thing happened with it, that we had been to meet the new CEO, Ajay Banga, who is a Punjabi, and a really bright, interesting, lovely guy and so, you and I were talking earlier about the interaction of people. And so we see him in a setting with other executives in his firm, and he’s first name basis, kidding with them. They kid with him. All of these things are important. Just things, you know, I talked about reading business biography, you get a feel for how people behave and how they deal with their colleagues and so on. And so we have made five times our money in six short years in an extraordinary business. Now, if you remember what I talked about, the third leg, reinvestment, their returns are so high that they can’t possibly find another place to reinvest their money at that rate and get that return. So our compounding is diminished modestly because of that. So they buy in scads of stock, they pay a dividend, they invest a lot in new technologies all relating to what I call the electronic exchange of value. I mean, that is really the business they are in, and we don’t know what form factor it will take in years, but they are well-positioned in all of the things that are going on today.

Another company that is relatively new to us is Moody’s, and we bought our Moody’s originally in January of 2012. And we paid about $39, a little less than $39 for it. Today, it is $110. And so we have a case where we have made 2 ½ – 2 ¾ time our money. Again, the same idea, a great business, after Dodd-Frank, the Government authorized another six or eight rating agencies to exist. I am sure there is not a person in this room who can tell you the name of any of them. It is a market-driven thing. It’s not regulatory-driven. And so any company that issues debt has to go out and get a rating on it. And there are really three rating agencies – Moody’s, S&P and Fitch. The market is divided, like 40%, 40% and 20%. Fitch has had 20% for nearly 100 years. They just can’t seem to grow it any larger than that, and it is market driven. And if you sit on the board of a company that is about to raise debt, and you go out and you don’t get a rating on your debt and you have a bad effect in the market, you have a liability. So it is a fascinating business that, again, market forces allow it to have very high returns on its capital.

Another company that we have been involved with for, almost 10 years is company called Enstar. And I sat on their board for five years, because I wanted to try to understand how the business really operated, and it is a complicated business. They buy insurance which is in runoff. And that is, operating insurance companies periodically decide, well, we don’t want to be in homeowners anymore or we don’t want to be in long haul trucking anymore, or whatever, and they run that business off and they are required to keep assets to support those liabilities by the regulators until that business is gone. And executives in businesses like insurance who have aspirations in their career would not like to be placed in the runoff. It is sort of the back room of the business. And this group of people who started this company are chartered accountants by training and they are headquartered in South Africa, and Dublin, and Bermuda and London. And they travel all over the world all the time, in search of trying to find these little pieces of business. I have seen instances where they worked on a piece of business for five or six years. They are very patient, very disciplined. And when I got involved in this company in 2007, it had a record of compounding book value per share a little bit north of 20%. But it was also three times book. And I paid $102.90 for my first shares in 2007. And today, it is worth about $195. So it has not been a very good investment. And you know, I mean, I have essentially doubled my money, but it has taken 10 years. So that number, obviously roughly around 7% compounded. But then the valuation got more attractive periodically and in 2009, I was able to buy some stock at $56. So my return there is nearly four time, and that sort of stuff. And so, that goes back to this issue I was talking about, your starting valuation. And you know, when I paid three times book for this company in ’07 and it had a history of compounding book at 20%, had it been able to continue to compound at 20%, I would have done much better. But their rate of return has come down, just like it has in all business, as we have had this secular decline in interest rates for 36 years as a backdrop. Everybody’s business returns are lower, nearly everybody.

And so those are sort of five examples of businesses that we own or have owned, where we have had these great returns as a result of using this process, using our process, we call it the three-legged stool, of identifying businesses that we think are likely to give us a return that is above average.

I am getting near the end here.  You are getting anxious, I know that.  So I will give you a few quotes out of the Einstein, because I find him simply a great thinker.

“You should make everything as simple as possible, but no simpler.”

You will have to think about it a minute.

“The difference between stupidity and genius is that genius has its limits”

“We cannot solve our problems with the same thinking that we used to create them”

“The only source of knowledge is experience.”

“Imagination is more important than knowledge”

I told Saurabh that was what it actually says on the front of my book. And

“the true test of intelligence is not knowledge, but imagination”

So we put our own little quote on the end of that. It is an old saw which says that good judgment comes from experience, and experience comes from bad judgment.

So in conclusion, we work in a town with one traffic light. And I say it makes the decision process so much simpler. Einstein, make things as simple as possible., We tell people when they get to the light, turn, Sooner or later, they will get to us in the town.

And what is really important is that, in a campus like this or in Central Park South in New York, or in downtown San Francisco, or Los Angeles, we would be surrounded by hundreds of people who are very bright and very interesting. And the reason we are in a town with one traffic light, away from that, is that their stuff would be intellectually appealing to us and it would distract us from what it is we do well. And that is a really important notion Warren Buffet talked about getting out of New York and going back to Omaha when he was a young man. It’s the same idea. And not that being in your midst would not be unbelievably fulfilling or being in New York or something like that. It is that it distracts us from what we do well. And so, that is a really important thing, is you are thinking about being an investor is to create the situation for yourself, that you have the ability to apply what it is that you have learned and found valuable in investing, as opposed to listening what Squawk Box, or your next door neighbor , or your suite mate says, something like that.

Make things as simple as possible, but no simpler. Imaginations is more important than knowledge, you know? So I say, simply use your own observations. It is very important. Peter Lynch used to talk about buying the things that you see happening. In the Shopping center, there is a new store and they are getting a lot of traffic, or whatever. Do you all know who Peter Lynch is? I mean, he has a really unusual talent. He has 1,200 securities in the Fidelity Magellan Fund. He ran it for eight or nine years and had a phenomenal record and so on. But he had 1,200 securities. I mean, imagine, so I was in, seeing him one day. And what he would do – we were talking about this earlier – is if he found an industry that he liked, he would buy every company in that industry, put them in his portfolio and then he would eliminate them one at a time, as he kept honing in on who were the best ones and so on. It is not a talent that I have.

And then I say, just because you have a big brain doesn’t mean you could be good at investing. And that’s an important thing too. And finally there is no correct answer. There is no correct way. This is just the way it works for us. I am happy to have the opportunity to share these few thoughts with you, and I guess we will have a few Q & A.

Saurabh: Yes. Thank you so much.

Chuck Akre: Right, Thank you.

Saurabh: I just have couple of quick questions for you. And thank you for showing us a glimpse of the sense of humor that I was talking to you guys about.

Sort of just before the talk started, you and I were talking about family.

Chuck Akre: Yes

Saurabh: And you were talking about your kids. And if I remember correctly, none of them are doing what you did in your career. And I mean, over the years of successful investing, by the number that you have shared with us, I am sure you have made a little bit of money for yourself.

Chuck Akre: I am not worried about my next meal.

Saurabh: Yeah, that’s what I meant. I was just curious, what are your thoughts? You said that you believe it is important to let your kids have their own struggles in life. So talk to us a little bit about family, about raising kids, about giving money away, may be.

Chuck Akre: So my wife and I spend a reasonable amount of time figuring out how we can put the money to use in places that will be advantaged by it, as it relates to things that we are interested in, or land conservation, health care issues, education, shelter, things of that nature. And so we pursue that significantly, as so many people do. And then it creates an issue within the family, where we have developed an asset base that we certainly never expected to have. And we have seen, particularly where we live and work, in Middleburg, Virginia. You know, Paul Mellon lived there and Jackie Mars lives there, and there is a lot of wealth in that area, and we have had a chance to see people who have been, well, as we would say, they are on scholarship or there are on full scholarship. And we see some of those whose lives are really up-ended because of the fact that they have a vast amount of capital available to them. They don’t have to work, and they don’t. And so, the phrase that my wife and I use is, we don’t want to deprive our children of the opportunity to struggle. Struggle in my own life has been very valuable. I was telling Daniel yesterday, there have been a number of time in my life, that if your glasses had the right rose color in them, my assets would equal my liabilities. But you had to have the right color rose glasses, you know? And so those experiences have been valuable to me as a human being, and as an investor, and so on. And so, that is one of the things that we think about, and talk about, and work out.

Saurabh: Thank you.

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