Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
I think it will go down a fraction more than 1% today, giving it a YTD of between -8% and -9%. Sears had a big up day. Fannie and Freddie extended their sig. losses.
Something tells me this one headed to Supreme Court.
Charles I think those -50% one day losses we saw yesterday on Fannie and Freddie could just as easily be +50% and much more one day gains if the courts change their mind and rule in favor of shareholders. The stock prices on those seem to be 100% tied to court and government decisions about Fannie and Freddie. The stocks could really go thru the roof if the decision is made to return the companies to shareholders and allowed to funnel their profits to them.
I think both companies have already repaid the government what was borrowed, have they not? I think Bruce has a very strong argument, and having Ackman on your side always helps.
I just wouldn't be able to handle the volatility and uncertainty of FAIRX. FAIRX is like a hedge fund now. Certainly better to pay 1% versus 2%/20%
Could be Kaspa. The revenge of Bogle? Kaspa, If that law is so strong, what's the point in even studying active mutual fund managers to try and find the best ones?
I am a long time FAIRX investor and I sold everything today. this is looking like a replay of 2011 when BB was down over 30% in an up market. I held off selling before because of the tax hiT on my gains over the years but finally decided just to take the hit. What he is doing with a number of positions feels to me like gambling and not value investing
That is the argument of indexers. It is indeed hard to find active fund managers who can beat the index over long term. Those who take the most risk would have greater standard deviations in their returns, which means they may appear to be much better than everyone in some years. Having said that I do own active funds, but keep a close eye. The only funds which I have owned for a long time (around 10 years) are FPACX, OAKBX and MACSX. More and more of my portfolio (started off with about 40%, but it has increased to about 50% because it did better than the rest) is in ETFs. There does seem to be some short term persistence in performance which I try to exploit.
That is the argument of indexers. It is indeed hard to find active fund managers who can beat the index over long term.
Yes, Bogle is winning a lot of people over to his viewpoint. And in a year like 2014, active funds are generally doing very poorly in relation to index funds. Something like 30% of all fund assets are now indexed [?or is that 30% of all stock market assets, don't recall], compared to hardly anything in the 1990's. When you can get a fund like VTI at 5 basis points expense ratio, it's hard to beat. The Admiral shares of the same fund also have a 5 basis points expense ratio. Buffett is a big fan of the Vanguard S&P 500 index fund.
This idea of trying to beat or even match the averages frustrates investors when it shouldn't in my opinion. If the S&P is up 10% for the year and the investor's portfolio is up only 9%, they should still be happy. That is still much better than what they could get elsewhere.
These ETFs like the one mentioned by rjb112 are a great way to invest. It's just that people are looking at the numbers as some kind of race against each other rather than building their own portfolios.
I do think active management can be valuable and has a place. For example FPACX and VWELX have given us market like returns with lower volatility. I also like PAAIX for its equity like returns, lower volatility in times of stress and inflation protection using multiple asst classes. To me the key is that the manger's investments be consistent with the fund's stated goal that caused us to invest in it in the first place. BB repeatedly says his first rule is not lose money. Digging a huge hole every couple of years and then taking big risks to get out of it is not consistent with his first rule
What he is doing with a number of positions feels to me like gambling
Everything is some degree of gamble. However, I think what truly defines gamble in this sense is making an investment (and putting a large part of the fund in it) that works or doesn't based upon winning a court case against the government. With Sears, to some degree he's gambling on Eddie Lampert, someone even Cramer (who I believe worked with Lampert at Goldman and was pumping Sears for a while some time ago) has distanced himself from.
This is unbelievable. We are making so many intelligent comments here, we should have known why we invested in FAIRX in the first place. No one can feel happy when fund drops 10% in a day. However, one cannot seriously suddenly forget why they bought FAIRX. OR did they even think before they bought it? Which FAIRX shareholder did not see the risk in FAIRX where 1 holding makes up 50% of the portfolio? Suddenly BB is a gambler now?
If you bought FAIRX because of the performance you saw, then just sell without providing any reason, because it is obvious why you are selling. Yes, stock investing IS gambling. Let's not BS each other regarding value vs growth. One makes his projections and hope they come true. Berkowtiz has $160M if his assets in Fairholme. I'm imagining most of them in FAIRX. How do you think he liked that 10% loss the other day?
THIS is the real reason most people should invest in Index funds. It is not active vs passive. It is about us thinking we have this magic formula where we will always buy a fund that will only go up. WHEN vs WHAT people !!! You want to buy an actively managed fund then buy it when you are comfortable and then be prepared to hold it though up and downs and give yourself a long enough time horizon so you can do that. Or just don't buy it.
"THIS is the real reason most people should invest in Index funds. It is not active vs passive. It is about us thinking we have this magic formula where we will always buy a fund that will only go up. "
There is no magic formula and people can't continually try to outguess a manager. However, I also don't agree with this concept of, "I bought a mutual fund so I then shut off my brain and don't dare question a manager when their actions start to consistently concern me."
There's also way too much worship of star managers, although admittedly there seems like fewer and fewer of those.
What Vintage Freak said. There were plenty of signs for years now that BB's funds are risky -- if you weren't up for risk and holding on for the long term, you should never have invested with him.
To me the key is that the manger's investments be consistent with the fund's stated goal that caused us to invest in it in the first place. BB repeatedly says his first rule is not lose money. Digging a huge hole every couple of years and then taking big risks to get out of it is not consistent with his first rule
@ValueSeeker, you have a very good point about BB's emphasis of his first rule. And his second rule is don't forget the first rule. He needs to scrap that, and tell shareholders that FAIRX is an aggressive, risk taking fund whose goal is to hit a home run. And not act like this is a fund whose primary goal is not to lose money, like some Warren Buffett or more like a Benjamin Graham investment.
You had good reason to sell, as you stated, "What he is doing with a number of positions feels to me like gambling and not value investing". He should change his value investing/don't lose money mantra. Many FAIRX shareholders are not happy to be in a position where a court ruling so affects their investment. That's not the BB that long time shareholders came to trust. He appears to have changed a lot from those earlier days, taking risks that seem out of character with what shareholders thought he was like.
To me the key is that the manger's investments be consistent with the fund's stated goal that caused us to invest in it in the first place. BB repeatedly says his first rule is not lose money. Digging a huge hole every couple of years and then taking big risks to get out of it is not consistent with his first rule
@ValueSeeker, you have a very good point about BB's emphasis of his first rule. And his second rule is don't forget the first rule. .
Wasn't that Buffett's "rule". Not sure I ever heard/read Berkowitz say it. Berkowitz's thing has always been "ignoring the crowd" (sometimes the crowd is right) and lately, he seems to have taken to anything resembling something TBTF.
To me the key is that the manger's investments be consistent with the fund's stated goal that caused us to invest in it in the first place. BB repeatedly says his first rule is not lose money. Digging a huge hole every couple of years and then taking big risks to get out of it is not consistent with his first rule
@ValueSeeker, you have a very good point about BB's emphasis of his first rule. And his second rule is don't forget the first rule. .
Wasn't that Buffett's "rule". Not sure I ever heard/read Berkowitz say it. Berkowitz's thing has always been "ignoring the crowd" (sometimes the crowd is right) and lately, he seems to have taken to anything resembling something TBTF.
Yeah, it's always been BB's first and second rule. He's expressed it many times, as ValueSeeker says. Here's some documentation. But I certainly agree with you, lately he has taken to anything resembling TBTF, systemically important companies, etc.
If history rhymes this just might be a good year to dca into additional shares of FAIRX.
Similar to 2011 when the fund was in the 100th percentile of LV funds, 2014 is looking much the same. The fund was in the 96th percentile as of Sept 30th so I will venture a guess it is in sole possession of the cellar today.
This fund has had many more great years as this 10 year performance chart shows.
@bee, no doubt. "This fund has had many more great years as this 10 year performance chart shows."
By the way, the 2.55% YTD from 9/30/14 is now -8% as of yesterday, but up 1.77% today with good performance by Freddie and Fannie.
And possibly the 3 best years (on a relative performance basis) were 2000, 2001 and 2002. Breathtaking performance relative to the market. You would never know that was a bear market, looking at FAIRX.
Until I sold FAIRX a couple of days ago I had owned it for over 10 years. Over the years BB drifted from being a deep value focused manager to a swing for the fences style. When management changes, through style drift or manager turnover, we are faced with bad choices: sell and incur tax costs or stay put and hope for the best. To me that is the most frustrating thing about active managment and the most compelling argument for indexing. Even when investing in indexes underperforms, you are not forced to sell and pay taxes prematurely because the manger is no longer what you invested in originally. I have to admit that despite that I still keep a healthy portion of my assets actively managed. Perhaps against my better judgement.
Until I sold FAIRX a couple of days ago I had owned it for over 10 years. Over the years BB drifted from being a deep value focused manager to a swing for the fences style.
I'm sure many FAIRX shareholders sold this week. The below was posted on another message board just yesterday:
"I solved the problem. I am done with Bruce Berkowitz as of the close of business today. Sears is up about 7% right now so I hope that helps a little bit to lessen today's losses. I made very good gains over the last 7 years and cashed out of this investment vehicle from this once RESPONSIBLE money manager."
@vintagefreak: Well when I bought the fund, it was concentrated, but not to this extent. From Fairholme reports: In Nov 2008, largest holding Pfizer 18.7%, next Sears 6% Nov 2009, largest holding Sears 10.6%, Berkshire 10.1% Nov 2010, largest holding General Growth properties 13%, next AIG 9.2% Nov 2011, largest holding AIG 26%, AIA Group 11.4%, Sears 10.7% Nov 2012, largest holding AIG 42.3%, Bank of America 11.5%
I sold when the fund was still doing well (progressively sold over end of 2013 to beginning of Jan 2014). I should have probably pulled the trigger earlier, but it was definitely not as a result of a big drop like last week.
Pfizer is definitely blue chip and Berkshire as well. I had not heard of Fairholme before I came here but it sounds like the fund slowly condensed like cooking on the stove. A lot of shareholders may not have realized what was happening until it was too late.
I had not heard of Fairholme before I came here but it sounds like the fund slowly condensed like cooking on the stove. A lot of shareholders may not have realized what was happening until it was too late.
I think you are exactly correct. People invested in FAIRX because of Bruce Berkowitz and his superb stock managerial skills. Investors in FAIRX did not feel they needed to scour the portfolio and second guess the manager. Then out of the blue one day it's, "What, 50% of my investment is in AIG, common stock plus warrants"? 15% in BAC. Sears....ahhh. St. Joe, another risky stock. Then Freddie and Fannie, whose very existence depends on court cases, super high risk. Add it all up..... All of a sudden, this is not the guy who for years said, "Rule number one, don't lose money"....Rule number 2, don't forget rule number 1". Any FAIRX investor can handle a large weighting in Berkshire Hathaway, because most FAIRX investors are very well disposed towards value and towards Warren Buffett. I sold all my FAIRX at the end of 2013 and first week of 2014. It was the accumulated risk that the portfolio had taken on, and concomitant loss of faith that BB was really following Rule number 1 and Rule number 2, as he had promised.
@rjb112, you said it better than I. From what I have gleaned from here and other places, BB hasn't been the best communicator to his shareholders either. Now either he is poor in that department or, he didn't want shareholders to get spooked. For the benefit of the doubt I'll go with the first.
Any shareholder should know that when the fund goes off on a different course than what was told that should prompt a decision on whether to continue with the fund or sell and move on. Sounds like you chose wisely.
@Valueseeker I've been thinking along these lines too: "When management changes, through style drift or manager turnover, we are faced with bad choices: sell and incur tax costs or stay put and hope for the best. To me that is the most frustrating thing about active managment and the most compelling argument for indexing."
That's making me think that going forward I should either go with index funds or with team managed funds (Primecap, D&C) that can survive some management turnover.
@vintagefreak: Well when I bought the fund, it was concentrated, but not to this extent. From Fairholme reports: In Nov 2008, largest holding Pfizer 18.7%, next Sears 6% Nov 2009, largest holding Sears 10.6%, Berkshire 10.1% Nov 2010, largest holding General Growth properties 13%, next AIG 9.2% Nov 2011, largest holding AIG 26%, AIA Group 11.4%, Sears 10.7% Nov 2012, largest holding AIG 42.3%, Bank of America 11.5%
I sold when the fund was still doing well (progressively sold over end of 2013 to beginning of Jan 2014). I should have probably pulled the trigger earlier, but it was definitely not as a result of a big drop like last week.
Look, i am not trying to start a war. If you sold earlier then you did when vs what and good for you. However then why criticise the fund?
For those who knew w 10 days back it was risky. You waited for the 10 percent drop and then sold. Why did you not sell earlier? If it didnt drop 10% woud-ld you be holding.
One should have reason for holding actively managed fund. Yes, one can change ones mind. However, lets be honest to ourselves. This is MFO. This is not facebook or twitter.
Not perceiving it as a war either. I just provided the reason why I sold the fund as it was becoming risky for me regardless of the performance. It simply was not being managed the way I thought it would be when I bought. It was becoming more and more concentrated to the point, I became uncomfortable holding it. Anyone who is comfortable with these risks can continue to hold this fund.
Comments
I think it will go down a fraction more than 1% today, giving it a YTD of between -8% and -9%.
Sears had a big up day. Fannie and Freddie extended their sig. losses.
I think both companies have already repaid the government what was borrowed, have they not? I think Bruce has a very strong argument, and having Ackman on your side always helps.
I just wouldn't be able to handle the volatility and uncertainty of FAIRX. FAIRX is like a hedge fund now. Certainly better to pay 1% versus 2%/20%
Kaspa, If that law is so strong, what's the point in even studying active mutual fund managers to try and find the best ones?
standard deviations in their returns, which means they may appear to be much better than everyone in some years. Having said that I do own active funds, but keep a close eye. The only funds which I have owned for a long time (around 10 years) are FPACX, OAKBX and MACSX. More and more of my portfolio (started off with about 40%, but it has increased to about 50% because it did better than the rest) is in ETFs. There does seem to be some short term persistence in performance which I try to exploit.
These ETFs like the one mentioned by rjb112 are a great way to invest. It's just that people are looking at the numbers as some kind of race against each other rather than building their own portfolios.
If you bought FAIRX because of the performance you saw, then just sell without providing any reason, because it is obvious why you are selling. Yes, stock investing IS gambling. Let's not BS each other regarding value vs growth. One makes his projections and hope they come true. Berkowtiz has $160M if his assets in Fairholme. I'm imagining most of them in FAIRX. How do you think he liked that 10% loss the other day?
THIS is the real reason most people should invest in Index funds. It is not active vs passive. It is about us thinking we have this magic formula where we will always buy a fund that will only go up. WHEN vs WHAT people !!! You want to buy an actively managed fund then buy it when you are comfortable and then be prepared to hold it though up and downs and give yourself a long enough time horizon so you can do that. Or just don't buy it.
There is no magic formula and people can't continually try to outguess a manager. However, I also don't agree with this concept of, "I bought a mutual fund so I then shut off my brain and don't dare question a manager when their actions start to consistently concern me."
There's also way too much worship of star managers, although admittedly there seems like fewer and fewer of those.
You had good reason to sell, as you stated, "What he is doing with a number of positions feels to me like gambling and not value investing". He should change his value investing/don't lose money mantra. Many FAIRX shareholders are not happy to be in a position where a court ruling so affects their investment. That's not the BB that long time shareholders came to trust. He appears to have changed a lot from those earlier days, taking risks that seem out of character with what shareholders thought he was like.
http://fortune.com/2010/12/10/bruce-berkowitz-the-megamind-of-miami/
Quoting from the article: "As he is fond of saying, “The first rule is: Don’t lose money. The second rule is: Follow the first rule.”"
Similar to 2011 when the fund was in the 100th percentile of LV funds, 2014 is looking much the same. The fund was in the 96th percentile as of Sept 30th so I will venture a guess it is in sole possession of the cellar today.
This fund has had many more great years as this 10 year performance chart shows.
By the way, the 2.55% YTD from 9/30/14 is now -8% as of yesterday, but up 1.77% today with good performance by Freddie and Fannie.
And possibly the 3 best years (on a relative performance basis) were 2000, 2001 and 2002. Breathtaking performance relative to the market. You would never know that was a bear market, looking at FAIRX.
"I solved the problem. I am done with Bruce Berkowitz as of the close of business today. Sears is up about 7% right now so I hope that helps a little bit to lessen today's losses. I made very good gains over the last 7 years and cashed out of this investment vehicle from this once RESPONSIBLE money manager."
[bolding mine]
Well when I bought the fund, it was concentrated, but not to this extent.
From Fairholme reports:
In Nov 2008, largest holding Pfizer 18.7%, next Sears 6%
Nov 2009, largest holding Sears 10.6%, Berkshire 10.1%
Nov 2010, largest holding General Growth properties 13%, next AIG 9.2%
Nov 2011, largest holding AIG 26%, AIA Group 11.4%, Sears 10.7%
Nov 2012, largest holding AIG 42.3%, Bank of America 11.5%
I sold when the fund was still doing well (progressively sold over end of 2013 to
beginning of Jan 2014). I should have probably pulled the trigger earlier, but it
was definitely not as a result of a big drop like last week.
Any shareholder should know that when the fund goes off on a different course than what was told that should prompt a decision on whether to continue with the fund or sell and move on. Sounds like you chose wisely.
That's making me think that going forward I should either go with index funds or with team managed funds (Primecap, D&C) that can survive some management turnover.
For those who knew w 10 days back it was risky. You waited for the 10 percent drop and then sold. Why did you not sell earlier? If it didnt drop 10% woud-ld you be holding.
One should have reason for holding actively managed fund. Yes, one can change ones mind. However, lets be honest to ourselves. This is MFO. This is not facebook or twitter.