Better Know a Stock Picker

Welcome, Fools, to part 12 of our several-thousand-part series, "Better Know a Stock Picker," which is loosely, but not too loosely, based on Stephen Colbert's "Better Know a District" from The Colbert Report.

Like Stephen and his thorough investigations into America's congressional districts, each week I take a look at a fund you may want to own. What's on tap this week?

FBR Small Cap (FBRVX)

Expense ratio

1.4%

Fund size

$846 million in assets

1-year return

10.49%

5-year return

17.92%

10-year return

N/A

Source: FBR Mutual Funds

Top 10 holdings

Company

% of Assets

Penn National Gaming (Nasdaq: PENN  )

18.8%

American Tower (NYSE: AMT  )

15.1%

Markel (NYSE: MKL  )

10.5%

CarMax (NYSE: KMX  )

6.3%

Pinnacle Entertainment (NYSE: PNK  )

5.3%

99 Cents Only Stores (NYSE: NDN  )

4.3%

Monarch Casino (Nasdaq: MCRI  )

3.3%

Bally Technology (NYSE: BYI  )

3.1%

American Woodmark (Nasdaq: AMWD  )

3%

Americredit (NYSE: ACF  )

2.9%

Source: FBR Mutual Funds

Meet Chuck Akre
The fightin' team at FBR Small Cap is led by Chuck Akre, who has been named to Barron's list of top mutual fund managers for the past three years running. Call it a rare moment of clarity for the Street's stockinistas. Akre's picks have returned a little more than 17% annually since the fund's beginnings in December of 1996, besting the benchmark Russell 2000 index by more than 8% a year.

That's an enviable record, to be sure. More enviable is that Akre isn't running the hamsters on overdrive in a back room to spreadsheet his way to success. Instead, he's a liberal arts guy, with a degree in English from American University. That means he has a keen eye for both a good read and a good stock story.

Plus, he's a poker player, which means he isn't afraid to go "all in" when he finds a stock worth betting on, such as slot machine operator Penn National Gaming. Akre told me in an interview earlier this week that the stock trades for roughly 10 times free cash flow, but has grown book value by more than 30% over the past several years. Eat that, Wall Street.

3 Foolish Questions
Of course, there's more to Akre than stock-picking 'zazz. In our interview, I asked him about how he spends his time when not watching the digital ticker tape. Check out his answers to my three Foolish questions:

What car do you drive? Akre says he drives a 2003 Audi Quattro. Better still, he bought it used. Smart man.

What do you do when not picking stocks? For Akre, relaxation means tooling around his farm, where he maintains a stable of horses. Not that he's a cowboy or anything. "I don't care take care of (the horses), but I do go look at them. I like to ride horses."

As it should be. Isn't part of the goal of investing to earn enough to enjoy what you love while paying others to do the heavy lifting? I'd say so.

What's the best book you've read in the past 12 months? Originally, Akre referred to an obscure 1972 book that I can find no mention of anywhere, which probably means I just didn't copy down the title correctly. Whatever. More important is that he also recently finished Copy This, the autobiography of Kinko's founder Paul Orfalea.

How he invests
Entrepreneurship comes naturally to Akre in investing. In 1989, he established Akre Capital Management (ACM). By 1996, however, he was manager of FBR Small Cap as a Friedman, Billings, Ramsey employee. It didn't take; ACM became an independent entity once again in 1999.

Today, Akre is a subadvisor for FBR Small Cap, and he's just as interested in investing in entrepreneurs as being one. For example, 99 Cents Only Stores, a top 10 holding, is still overseen by chairman and founder David Gold.

He also prefers to focus assets on his best ideas. Consider 99 Cents Only Stores again; Akre first acquired shares sometime between July and October of 2004. Investors have since punished the shares, but Akre has remained steadfast, sticking it to the growth huggers by boosting his position by more than 57%.

And that's just one stock. Of all of FBR Small Cap's holdings, the top 10 account for 72.6% of the fund's assets. Now that's what I call focus. I mean, really, if you're going to concentrate, at least have the guts to do it right. Akre does that in spades.

Is this fund for you?
So, is Akre the next Peter Lynch? Maybe, maybe not. But at a 1.4% expense ratio, it'll cost you to invest alongside Akre. That takes gravitas, Fool. Do you have it?

I won't blame you if you don't. Cheap fees frequently lead to big returns, and there are cheaper small-cap options in the Motley Fool Champion Funds portfolio, including one fund -- which charges a modest 0.94% annual expense ratio -- that's up 32.2% since joining the ranks in December of 2004. (It's one of many long-term winners for advisor Shannon Zimmerman; try the service free for 30 days to learn more.)

And that's this week's profile. See you back here next Thursday, fund nation. Good night.

Think you can't beat the market with funds? Think again! The selections in Shannon Zimmerman's Motley Fool Champion Funds portfolio are up an average of 18% vs. just 10% for their comparable benchmarks. Ask us for an all-access pass to get an unfettered look at all of Shannon's picks, manager interviews, and model portfolios. Go ahead; it's free for 30 days and there's no obligation to buy.

Fool contributorTim Beyersis a regular viewer of The Colbert Report. (Stay the course.) Tim didn't own shares in any of the companies mentioned in this story at the time of publication. Get the skinny on all of the stocks in Tim's portfolio by checking his Foolprofile. Markel and CarMax are Motley Fool Inside Value selections. The Motley Fool's disclosure policy is the big kid on the block.


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