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Bruce once stated he managed his portfolio as if his clients had all of their money invested with him (Wealthtrack interview). In late 2010, I noticed he changed the portfolio drastically; I sold. Fortunately, I did not get hurt by the big drop then. I believe he is talented but I wouldn't want him taking this kind of risk with 'all' of my money.
Bruce once stated he managed his portfolio as if his clients had all of their money invested with him (Wealthtrack interview). In late 2010, I noticed he changed the portfolio drastically; I sold. Fortunately, I did not get hurt by the big drop then. I believe he is talented but I wouldn't want him taking this kind of risk with 'all' of my money.
+++++++++++++ I think he's nuts to have half his portfolio in one stock, AIG. There are many thousands of stocks to choose from. What's the rationale for putting half of "all of their money" into one stock? Not long ago he had 52% of the portfolio in AIG. 50% in AIG; Names such as Sears, Fannie and Freddie, St. Joe. Bruce is a risk taker. I think he is very smart and very talented, but there's a disconnect between what he says and what he does. He says that Rule Number One is Don't Lose Money, Rule Number Two is don't forget rule number one, and he talks the talk of a risk averse investor. But risk averse investors don't construct a portfolio with ultra concentration to the max, (both with respect to individual names as well as sector concentration), and risky investments like St. Joe, Sears, Freddie and Fannie. I don't consider AIG to be a risky investment, but the amount of it he has imparts the risk. My guess is that he outperforms the market over the long term, but if I were inclined to motion sickness, I wouldn't want to be riding with him as the driver. @BrianW: you sold in late 2010: excellent timing! Right before a disastrous 2011. I stayed with Bruce for 11 years, then realized he was not the person I thought he was.
Bruce once stated he managed his portfolio as if his clients had all of their money invested with him (Wealthtrack interview). In late 2010, I noticed he changed the portfolio drastically; I sold. Fortunately, I did not get hurt by the big drop then. I believe he is talented but I wouldn't want him taking this kind of risk with 'all' of my money.
+++++++++++++ I think he's nuts to have half his portfolio in one stock, AIG. .
There is an exceptional amount of risk when you have a concentration to the degree that 50% of a portfolio (more or less) is in one stock, which I don't think is really appreciated by the financial media when discussing FAIRX. Not only from the standpoint of something happening to the company, but the risk that the position is difficult to unwind, other funds could try to squeeze you if things become difficult, etc.
Someone can have an exceptional amount of confidence in something, but nothing in investing is certain and 50% in one stock really starts to get to a place where the potential risk is - I think - really unappealing. I could say it's a hedge fund, but I think there's few hedge funds that would effectively take such an "all-in" bet with shareholder money.
Beyond that, I've often said that the financial companies still present a risk from the standpoint of not learning anything from 2008 and continuing to lack transparency. You can talk about book value, but I don't trust that the book value is as stated.
The Kiplinger quote that I often refer to:
A lot of well-known value investors fell on their faces the past year or two. Why did Fairholme hold up as well as it did?
"Maybe it's because I don't invest in things I can't understand....Or take American International Group. If you looked at an AIG annual report six or seven years ago, you saw one paragraph on derivatives. You look at an AIG annual report today and you see 15 pages on derivatives. I don't think company insiders fully understand what's going on, let alone outsiders. So if I don't understand something, I've learned to walk away."
Well, you have Citi's recent scandal, as well as BAC's recent incident. I still think these companies do not know/cannot comprehend the extent of what they have in their books/what's going on in the organization (when too big to fail becomes too big to fully control/comprehend) and that there will be more incidents like BAC's recent announcement.
I still think the full understanding isn't there, but Berkowitz rode the idea that these companies would continue to be supported and catered to long after they were bailed out.
As for Sears Holdings, I've discussed it at great length before. The parts and pieces are worth more than the current price (and that's if everything goes right, there's a mountain to climb between here and there), but I completely disagree with the overly optimistic case.
What can I say, I've drunk the kool-aid, I'm sticking with the guy. I've been in FAIRX long enough (8 years) that despite the underperformance of the last 5 years, I'm up a lot compared to the S&P. You certainly can't accuse of him of index-hugging; the man does deliver active management, and he's got pretty much his whole wealth in his funds. I think he personally opens something like 40% of FAAFX.
Warren Buffett says he only gets one or two really good ideas a year, then he sticks with them a long time. That's how I see Berkowitz. And I think that's the only chance a fund manager (or fund investor) has for serious outperformance.
The fewer funds, the better -- if you can pick the right funds. And that goes for stocks too: the fewer stocks, the better, if you can pick the right ones.
But yes, FAIRX is a different fund than it was in 2006, when it was well diversified and had great downside protection. It's become a fund to lock away for 10 years.
And no, I don't understand the SHLD investment, but if it were easy to understand, everyone would be making it.
FAAFX and FAIRX between them are about a quarter of my equity mutual fund portfolio. Time will tell if that is wise. FAAFX is still underperforming the S&P since inception, but I am a patient man.
Warren Buffett says he only gets one or two really good ideas a year, then he sticks with them a long time. That's how I see Berkowitz. And I think that's the only chance a fund manager (or fund investor) has for serious outperformance. .
And I respect Berkowitz overall to the point where I really do/did think that he would be somewhere in the running to replace Buffett at Berkshire (and it was kinda discussed at one point, I think), but I just don't agree at all with where Fairholme has ventured recently. And that's what makes a market and those sorts of sayings.
Anyone who likes this kind of strongly opinionated and focused play should, I'd suggest, take a position in CGMFX, and FLVCX too, though Soviero does diversify significantly compared with Berk and Heebner.
As men, we all have our own personal mix of fear and greed. This personal recipe defines who we are. As pertaining to investing, it is our job to find what allocation meshes with who we are. If we get it right, we hold. If we get it wrong, we buy things we don't understand, sell too early (or too late) and wind up with crappy results. As stated before, Bruce has always said that rule number one is, don't lose money. Perhaps he's doing his own version of John Templeton but I don't get it and even if he is successful, I'm glad I didn't come along for the ride.
Anyone who likes this kind of strongly opinionated and focused play should, I'd suggest, take a position in CGMFX, and FLVCX too, though Soviero does diversify significantly compared with Berk and Heebner.
@davidmoran: Interesting comment. I would guess that CGMFX and FAIRX are the two most 'focused'/concentrated/non-diversified mutual funds out there today. I think you hit it right on, that both Heebner and Berkowitz are strongly opinionated, and it seems to me they have some parallels too. IIRC, Heebner had extraordinary performance results with CGMFX for the first many years since inception. Truly amazing, not unlike Berkowitz's success at FAIRX from inception through the end of 2010. Then after his success in 2007, Heebner fell down hard, and has yet to get back up again. Berkowitz fell down very hard in 2011, but did very well in 2012 and 2013.
Interesting that they both started their funds at inauspicious times (years), leading up to the big bear that started March 15, 2000, and both had unexpectedly positive performances during that bear.
I'm surprised Heebner has stayed down this long. He's highly educated, and apparently fanatically passionate about investing, to the exclusion of almost everything else. He rarely takes a vacation. Hard to explain the turnover in his fund. He's really much more of a trader, his turnover is that high. I think Heebner is super smart and knowledgeable. He was just recently on WealthTrack with Consuelo Mack, and I was impressed with him. He seems to me to be a gambler with his investments, but I'm sure he sees that very differently.
As stated elsewhere, I believe Berkowitz will beat the market over the long term. I'm just not going to take that ride along with him anymore. Perhaps all the fame and adulation he received over the years, and all that goes with being the recipient of the Morningstar Equity Manager of the Decade in 2010.....I think that may have changed Bruce. He became a Rock Star; he became possibly the most famous mutual fund manager still actively managing a fund.
Rjb, you really might want to look into Soviero's work, since you know what you are doing, or think you do. Quite a ride but not quite as lumpy as these two guys.
An investment friend of mine in Boston who would know (quite a mucka, with a big firm and himself extremely wealthy) says that Heebner is, famously, an amazing nerd, sitting and researching for hours and hours reading and taking notes. I left his funds only upon forced retirement a year or two ago.
Just take a look at the performance of ICMAX vs FAIRX, on Morningstar. Eric Cinnamond may not be viewed very favorably at this time, but I'll take a steady, disciplined approach to the roller coaster approach of Berkowitz, Heebner and Soviero, anytime. It's very difficult to zig when others are zagging, but very profitable when you do.
@Maurice. Regarding what you said, "When I first was looking at FAIRX more than 10 years ago, Berkowitz had at least a third of the fund invested in Berkshire Hathaway. So if this style of investment makes you queasy, I can understand that. But Berkowitz's style hasn't changed a lot, since the fund was started. He has been consistent. Isn't that a characteristic that most of us want to see in mutual fund manager?" +++++++++++ I think Berkowitz investing a significant amount in Berkshire Hathaway is different, because Berkshire Hathaway is more like a mutual fund than a typical individual stock, since there are so many stocks owned by Berkshire Hathaway, as well as very many wholly owned companies such as See's Candies, Nebraska Furniture, etc. So it's like owning a mutual fund run by Warren Buffett. I was in FAIRX for 11 years, and don't recall how much Berkshire Hathaway was in FAIRX, but it didn't approach the 52% that was in AIG not that long ago. The Sequoia Fund used to regularly hold large positions in Berkshire Hathaway for many years.
I'm not sure Berkowitz has been consistent. I kept tabs on him for many years; my take is that he has changed. I see the portfolio as significantly more risky than in years past, both in terms of the percentage concentration in individual names, concentration in the financial sector itself, and the riskiness of some of the individual names, such as Sears, St. Joe, Fannie and Freddie. In my opinion, investing in Sears, St. Joe, Fannie and Freddie is not consistent with having Rule Number 1, Don't Lose Money; Rule Number 2, Don't Forget Rule Number 1. No one knows what is going to happen with Fannie and Freddie. Clearly, it's quite possible to lose one's entire investment in them, if the government carries through it's plan to dissolve the companies, although I doubt that happens. My guess is that Bruce wins big time with them, but they are clearly not investments for someone whose Rule Number 1 is Don't Lose Money. Just not consistent. Probably Bruce wins with all four of those names, as well as with his ultra concentrated bet on AIG, but you don't invest this way if your first rule is don't lose money. He needs to change his talk to match his walk.
FAIRX during last two market cycles Apr '00 - Sep '07 and Oct '07 - Present (thru 1Q14):
Despite the volatility since 2007, it remains in top quintile of risk adjusted return. Can also see a lot more volatility in this cycle versus previous cycle.
Liking full cycles numbers more and more these days...hoping to add them soon to Risk Profile search tool.
I didn't do a perfect job on timing FLVCX selling in October 08 and buying back in early may 09. The relevance to this thread is that first the fund has already been mentioned but more important was that it was clear the FLVCX was a bull market fund and should not be held in a bear market but was good investment once the bear ended . In contrast it was less obvious to investors in FAIRX that it would do badly in a bear market. I have not done the math to confirming missing 5 months of the bear and two months of the bull was better than remaining fully invested. It was certainly good for my sleep.
@jerry: That's the problem with these high beta funds, you can never be sure if you're getting in at a good time. How do you know when it is a bull/bear market as it can turn with any talking-head's comment or other 'Mr Market' whim? Low beta funds, on the other hand, allow you to be calm. It is true that you have to control yourself when the bulls are running, but when things get ugly, you sit back and say 'thank god I wasn't invested in FAIRX or FLVCX'. It probably isn't fair to mention those two funds in the same sentence since they invest in entirely different types of stocks, but in a down-market, do you really care if they're crashing as much or more as everything else? Slow and steady allows you to be calm and patient. Patient investing allows you to stick to a plan.
What shim my faith in FAIRX more than his portfolio moves was: (a) the number of really odd personnel issues he has had over the past 10 years, his judgement in this regard has been spotty if not poor at times; (b) his traveling road show schtick at the height of his popularity (claiming that it was all about communicating with current investors not garnering AUM).
I respect him as a manager but for these reasons keep my allocation to. FAIRX modest and in check.
What shim my faith in FAIRX more than his portfolio moves was: (a) the number of really odd personnel issues he has had over the past 10 years, his judgement in this regard has been spotty if not poor at times; (b) his traveling road show schtick at the height of his popularity (claiming that it was all about communicating with current investors not garnering AUM).
I respect him as a manager but for these reasons keep my allocation to. FAIRX modest and in check.
++++++++++ The issue of "the number of really odd personnel issues he has had over the past 10 years" influenced me quite a bit too. Inability to retain the excellent Larry Pitkowsky and Keith Trauner was most unfortunate, and other issues.
Rjb112 -- Bruce was ALWAYS on the money shows or in the trade press chatting himself up and taking a victory lap. When shareholders called him on it, especially since AUM were ballooning. Bruce's retort was that all of this made for an extremely efficient and effective way to keep communicating with existing shareholders.
Rjb112 -- Bruce was ALWAYS on the money shows or in the trade press chatting himself up and taking a victory lap. When shareholders called him on it, especially since AUM were ballooning. Bruce's retort was that all of this made for an extremely efficient and effective way to keep communicating with existing shareholders.
+++++++++++ "especially since AUM were ballooning" When I was a shareholder for 11 years in FAIRX, year after year I kept hoping Bruce would close the fund, as the assets kept going up and up. A big disappointment.
He did close FAIRX for a while, then opened it after it got hit with redemptions and he saw an opportunity in Fannie and Freddie. He opened FAAFX for smaller investments and closed it promptly. It's only got $370 million in AUM. FOCIX, an astonishing overperformer, he also closed quickly. It has only $240 million in AUM. Has there every been a bond fund that closed with so little AUM?
He's been quite transparent: FAIRX is for big investments, in the style of Berkshire Hathaway, and FAAFX is for smaller ones. He's got pretty much his whole net worth in his funds.
I think his huge investment in AIG is because he believes it to be as conservative and rock solid a bet as Berkshire Hathaway was a few years ago. So far that's worked out well, but of course time will tell.
That said, I understand and respect anyone who dislikes his funds' volatility and Bruce's superstar airs. He doesn't seem great at admitting mistakes (including, yes, personnel moves) and no, I wouldn't want to have all my money invested with him, especially if I were near retirement.
But the man is delivering true active management and superior returns over the long term, while putting his money where his mouth is. Personally, that's what I want from my equity mutual funds. My other big holding, a similar long-term outperformer with above-average volatility and a fund manager fully invested in his own funds, is Bridgeway, through BRAGX and BRUSX.
Comments
A bad hair day for Bruce.
I think he's nuts to have half his portfolio in one stock, AIG.
There are many thousands of stocks to choose from. What's the rationale for putting half of "all of their money" into one stock? Not long ago he had 52% of the portfolio in AIG. 50% in AIG; Names such as Sears, Fannie and Freddie, St. Joe. Bruce is a risk taker. I think he is very smart and very talented, but there's a disconnect between what he says and what he does. He says that Rule Number One is Don't Lose Money, Rule Number Two is don't forget rule number one, and he talks the talk of a risk averse investor. But risk averse investors don't construct a portfolio with ultra concentration to the max, (both with respect to individual names as well as sector concentration), and risky investments like St. Joe, Sears, Freddie and Fannie. I don't consider AIG to be a risky investment, but the amount of it he has imparts the risk. My guess is that he outperforms the market over the long term, but if I were inclined to motion sickness, I wouldn't want to be riding with him as the driver.
@BrianW: you sold in late 2010: excellent timing! Right before a disastrous 2011.
I stayed with Bruce for 11 years, then realized he was not the person I thought he was.
Someone can have an exceptional amount of confidence in something, but nothing in investing is certain and 50% in one stock really starts to get to a place where the potential risk is - I think - really unappealing. I could say it's a hedge fund, but I think there's few hedge funds that would effectively take such an "all-in" bet with shareholder money.
Beyond that, I've often said that the financial companies still present a risk from the standpoint of not learning anything from 2008 and continuing to lack transparency. You can talk about book value, but I don't trust that the book value is as stated.
The Kiplinger quote that I often refer to:
A lot of well-known value investors fell on their faces the past year or two. Why did Fairholme hold up as well as it did?
"Maybe it's because I don't invest in things I can't understand....Or take American International Group. If you looked at an AIG annual report six or seven years ago, you saw one paragraph on derivatives. You look at an AIG annual report today and you see 15 pages on derivatives. I don't think company insiders fully understand what's going on, let alone outsiders. So if I don't understand something, I've learned to walk away."
http://www.kiplinger.com/article/investing/T041-C000-S002-a-bargain-hunter-stands-tall.html?page=1
Well, you have Citi's recent scandal, as well as BAC's recent incident. I still think these companies do not know/cannot comprehend the extent of what they have in their books/what's going on in the organization (when too big to fail becomes too big to fully control/comprehend) and that there will be more incidents like BAC's recent announcement.
I still think the full understanding isn't there, but Berkowitz rode the idea that these companies would continue to be supported and catered to long after they were bailed out.
As for Sears Holdings, I've discussed it at great length before. The parts and pieces are worth more than the current price (and that's if everything goes right, there's a mountain to climb between here and there), but I completely disagree with the overly optimistic case.
Warren Buffett says he only gets one or two really good ideas a year, then he sticks with them a long time. That's how I see Berkowitz. And I think that's the only chance a fund manager (or fund investor) has for serious outperformance.
The fewer funds, the better -- if you can pick the right funds. And that goes for stocks too: the fewer stocks, the better, if you can pick the right ones.
But yes, FAIRX is a different fund than it was in 2006, when it was well diversified and had great downside protection. It's become a fund to lock away for 10 years.
And no, I don't understand the SHLD investment, but if it were easy to understand, everyone would be making it.
FAAFX and FAIRX between them are about a quarter of my equity mutual fund portfolio. Time will tell if that is wise. FAAFX is still underperforming the S&P since inception, but I am a patient man.
Interesting that they both started their funds at inauspicious times (years), leading up to the big bear that started March 15, 2000, and both had unexpectedly positive performances during that bear.
I'm surprised Heebner has stayed down this long. He's highly educated, and apparently fanatically passionate about investing, to the exclusion of almost everything else. He rarely takes a vacation. Hard to explain the turnover in his fund. He's really much more of a trader, his turnover is that high. I think Heebner is super smart and knowledgeable. He was just recently on WealthTrack with Consuelo Mack, and I was impressed with him. He seems to me to be a gambler with his investments, but I'm sure he sees that very differently.
As stated elsewhere, I believe Berkowitz will beat the market over the long term. I'm just not going to take that ride along with him anymore. Perhaps all the fame and adulation he received over the years, and all that goes with being the recipient of the Morningstar Equity Manager of the Decade in 2010.....I think that may have changed Bruce. He became a Rock Star; he became possibly the most famous mutual fund manager still actively managing a fund.
An investment friend of mine in Boston who would know (quite a mucka, with a big firm and himself extremely wealthy) says that Heebner is, famously, an amazing nerd, sitting and researching for hours and hours reading and taking notes. I left his funds only upon forced retirement a year or two ago.
+++++++++++
I think Berkowitz investing a significant amount in Berkshire Hathaway is different, because Berkshire Hathaway is more like a mutual fund than a typical individual stock, since there are so many stocks owned by Berkshire Hathaway, as well as very many wholly owned companies such as See's Candies, Nebraska Furniture, etc. So it's like owning a mutual fund run by Warren Buffett. I was in FAIRX for 11 years, and don't recall how much Berkshire Hathaway was in FAIRX, but it didn't approach the 52% that was in AIG not that long ago. The Sequoia Fund used to regularly hold large positions in Berkshire Hathaway for many years.
I'm not sure Berkowitz has been consistent. I kept tabs on him for many years; my take is that he has changed. I see the portfolio as significantly more risky than in years past, both in terms of the percentage concentration in individual names, concentration in the financial sector itself, and the riskiness of some of the individual names, such as Sears, St. Joe, Fannie and Freddie. In my opinion, investing in Sears, St. Joe, Fannie and Freddie is not consistent with having Rule Number 1, Don't Lose Money; Rule Number 2, Don't Forget Rule Number 1. No one knows what is going to happen with Fannie and Freddie. Clearly, it's quite possible to lose one's entire investment in them, if the government carries through it's plan to dissolve the companies, although I doubt that happens. My guess is that Bruce wins big time with them, but they are clearly not investments for someone whose Rule Number 1 is Don't Lose Money. Just not consistent. Probably Bruce wins with all four of those names, as well as with his ultra concentrated bet on AIG, but you don't invest this way if your first rule is don't lose money. He needs to change his talk to match his walk.
Good stuff!
You know I am a BB fan.
That said, your comment: "He has been consistent."
I think you are right...he has been, at least as far as any mere mortal perhaps.
But his fund performance has not been, which is what rocked his world.
I suspect it is not so much that he attained rock star status as it is what happens when folks knock their knights off white horses.
Hey, I posted this little study a while back...but think it's probably relevant to this thread:
Fairhome Fund – What a Difference a Decade Makes
Hope all is well.
FAIRX during last two market cycles Apr '00 - Sep '07 and Oct '07 - Present (thru 1Q14):
Despite the volatility since 2007, it remains in top quintile of risk adjusted return. Can also see a lot more volatility in this cycle versus previous cycle.
Liking full cycles numbers more and more these days...hoping to add them soon to Risk Profile search tool.
And here is M* performance plot, current cycle:
Versus 3 year plot:
I respect him as a manager but for these reasons keep my allocation to. FAIRX modest and in check.
The issue of "the number of really odd personnel issues he has had over the past 10 years" influenced me quite a bit too. Inability to retain the excellent Larry Pitkowsky and Keith Trauner was most unfortunate, and other issues.
online.barrons.com/article/SB50001424052748703927304576637270740785508.html#articleTabs_article%3D2
Regarding "his traveling road show schtick at the height of his popularity": what was that? Never heard about it.
Hard for me to ignore the numbers.
Top quintile.
Last two market cycles.
"especially since AUM were ballooning"
When I was a shareholder for 11 years in FAIRX, year after year I kept hoping Bruce would close the fund, as the assets kept going up and up. A big disappointment.
He did close FAIRX for a while, then opened it after it got hit with redemptions and he saw an opportunity in Fannie and Freddie. He opened FAAFX for smaller investments and closed it promptly. It's only got $370 million in AUM. FOCIX, an astonishing overperformer, he also closed quickly. It has only $240 million in AUM. Has there every been a bond fund that closed with so little AUM?
He's been quite transparent: FAIRX is for big investments, in the style of Berkshire Hathaway, and FAAFX is for smaller ones. He's got pretty much his whole net worth in his funds.
I think his huge investment in AIG is because he believes it to be as conservative and rock solid a bet as Berkshire Hathaway was a few years ago. So far that's worked out well, but of course time will tell.
That said, I understand and respect anyone who dislikes his funds' volatility and Bruce's superstar airs. He doesn't seem great at admitting mistakes (including, yes, personnel moves) and no, I wouldn't want to have all my money invested with him, especially if I were near retirement.
But the man is delivering true active management and superior returns over the long term, while putting his money where his mouth is. Personally, that's what I want from my equity mutual funds. My other big holding, a similar long-term outperformer with above-average volatility and a fund manager fully invested in his own funds, is Bridgeway, through BRAGX and BRUSX.