Bruce Berkowitz, Fairholme Capital Management's Founder, Managing Member, and Chief Investment Officer, will host a one-hour conference call on February 3, 2015, at 11 AM ET. Fred Fraenkel, Fairholme’s President and Chief Research Officer, will also participate. The purpose of the call is to give the public the opportunity to engage with the firm, understand its strategies and holdings and raise questions or topics for discussion.
On the call, Mr. Berkowitz will address comments and questions submitted in advance by the public. Fairholme will accept questions and/or comments until Wednesday, January 28 at 5 PM ET. All topics for discussion may be submitted electronically to
[email protected]. Please note that submissions will remain anonymous. Live stream details and a transcript of the call edited for clarity will be made available at www.fairholmefunds.com.
Comments
(sigh)
Classic Bruce Berkowitz.
Remains committed to investing in his best ideas.
Deeply undervalued stocks...far below assessed value.
Looks for large gaps between price and value.
Investing requires as much insight into psychology as it does accounting, along with patience and courage of conviction...until the crowd finally agrees.
Patience pays.
He has 100% of his savings invested in Fairholme funds and ideas. Employees continue to increase their investments in Fairholme funds.
He does not hedge. He does not short. "Not in our DNA." The closest thing to hedging is when he exits a position deemed at fair value. "Knowledge is our hedge."
Attempts to stay course under pressure, when he know he looks wrong...through inflows and outflows. Believes current shareholders know what to expect and are in it for the long term, five years or more.
He remains the sole asset allocator. He uses his staff of half a dozen analysts, along with outside experts to challenge his positions. His analysis staff continues to increase. He expects to remain leading Fairholme for life...at least the next 20 years.
His job is to find "fallen angels priced to fail," expecting Mr. Market to disagree with him at times.
He ties to focus on valuing positions. He tries to avoid predicting time-frames.
He believes risk is not volatility, which he recognizes some see as a proxy to risk.
Risk is potential for permanent loss of capital, adjusting for inflation.
Volatility is needed to prosper.
Perception and reality meet when price equals value.
Acknowledging returns can be "lumpy, but above average" over long run, besting SP500 index.
Remains committed to AIG, BAC, Fannie & Freddie, and yes, Sears Holdings...even, Eddie Lampert, who he knows is no longer regarded very highly by public.
AIG and BAC will continue to get stronger as Great Recession troubles get behind them. Both will benefit in higher interest rate environment.
He wove an amazingly detailed trail of folks once inside or now inside Treasury that likely aided FHFA take all Fannie & Freddie profits via conservatorship, though now deny Treasury involvement. He believes both agencies remain vital to nation and future growth and have made more money for government than any in history. Government can't be above legal scrutiny, and he remains confident he will win suit. The case is in discovery stage and Fairholme has been mandated to not disclose any of its material findings to public because of potential harm to government.
On Sears, he believes the real estate remains a "once-in-a-lifetime" opportunity. He denied that he is so committed to Sears that he can't turn back now. He and every real estate expert he has brought into review continue to see extraordinary value. The REIT, which he says he did not have details on, will likely help reveal true value. He also stated that he thought the retail losses were starting to stem.
He exits positions only when they no longer rise to top of best ideas at Fairholme.
He intends to post call transcript on-line.
And, if anyone has further questions, or thinks "he is full of it," he welcomes emails and opportunity to answer.
Wrong, wrong, and wrong! I would say this guy is another Hussman except he is not losing money. It's just that over the past month, one, three, and five years he is massively under performing the S&P and his benchmark. I must have missed something when I was gone a couple years back but what is the allure of this guy and his fund - his ancient history performance perhaps?
Basically, investing with Bruce the past 15 years means you have more than quadrupled your investment since FAIRX inception. You've earned 11.7% per year!
Who has beaten that? Suspect very few.
But you are absolutely correct about performance last 5 years and one year. But he does have strong 3 year performance, so he's not a Three Alarm Fund, if that is what you mean.
I certainly hope he's not another Hussman from a performance perspective. And, their investing styles? Really, no comparison.
c
Was there any discussion of Lands End? (I know, I'm being lazy. I'll check the transcript.)
Portfolio Weight % Shares Owned Total Ret YTD (Daily)
Lands' End, Inc. 0.66 1,641,616 -34.04
@Junkster
It's a independent focused value fund. Is it out of step with the market bc there is an opportunity or are his best ideas not very good? There are plenty of arguments against Bruce though. You could replicate the fund pretty easily as his top investments haven't changed in a long while.
Edit: Haven't many healthcare/biotech funds bested FAIRX over that 15 year period and with a much smoother ride?
And did anyone ask what happens if he gets his big macro call wrong -- that the economy and market are on the verge of a long upswing? It's hard to get those macro calls right...
The Sears story? I've been a vocal opponent of the long story, as well and have gone into reasoning countless times before. Fairholme was buying Sears above $100. Is there more value in Sears than the current stock price? Perhaps, but there's no way the stock will see $100+. There's just way too much retail real estate, with Sears and tons of other retailers looking to offload real estate into a buyer's market. The REIT spin-off? No thanks and I just don't see the demand being there.
I really am starting to think a group of managers got sucked into the Eddie Lampert story ("It's the next Berkshire!") and are now finding out it wasn't what they thought. If it was such a tremendous story, the market wouldn't seem to disagree so much and for so long. Yeah yeah, ignore the crowds - but sometimes the crowds are right.
The thing that continues to get me was a Kiplinger's article with Berkowitz in 2009 where he talked about if he doesn't understand something, he walks away in reference to things like AIG's derivatives. Then shortly after he loads up?
There's also the Fannie/Freddie bet that's gone sour although he continues to fight the government. Good luck with that.
Financials have done (at least at last glance) worse than energy this year, which hasn't helped BAC/AIG.
And yes, Biotech has beaten a lot of things (and I think it probably will continue to do well and now it's starting to pay dividends (Gilead announcing their first dividend yesterday, Amgen increasing dividend with next payout.) I certainly see more tailwinds then headwinds for healthcare in general going forward.
As for Fairholme:
"Believes current shareholders know what to expect and are in it for the long term, five years or more."
LOL. They'll run to something else if things don't get any better without a second thought.
"Believes current shareholders know what to expect and are in it for the long term, five years or more."
Five years is a long time to wait. With Six You Get Eggroll.
Yeah, not many. Tillinghast and Soviero at Fidelity (FLVCX has not been around the full 15y, a month or so less). CGMFX beats all hugely, but not for shorter spans except for selected. I will have to compare UIs for these four. I imagine investor returns for all three other than FLPSX have been grim because 'stay the course' has been so difficult and unlikely.
It's a bit dated, but it may be of interest since I think it supports Junkster's contention: The lack of volatility during Fairholme's first decade, while still delivering strong returns, is precisely what made it so appealing to so many.
And, to Scott's point, on when BB may have turned. I believe it was 2011 and he went all financials.
He got hammered that year.
"Premature accumulation," he called it.
He was right ultimately to focus on financials ... all of them.
But he was out-of-step with shareholder expectations. And so, the redemptions.
Do you think that it was growth in AUM that forced him into higher volatility situations, perhaps the only way to retain the alpha he delivered in the first decade? But if so, why does FAAFX exhibit similarly high volatility?
Maybe he feels the investing environment has changed, fundamentally, and those days of finding superior gains with lower volatility are no more?
I've gotten used to the volatility and remain long and heavy FAAFX. I've owned it pretty much from inception (no pity please...I hate that), lived through the MBNA gyrations ... and now the Fannie/Freddie and SHLD gyrations.
Lost confidence? Never in his ability to seek deep value and articulate his reasons. His rationale generally seems sound to me. No, no loss of confidence.
He's disappointed me a couple times. The open/closed/open door stuff seemed silly. He was premature to sell MBNA, but he made a small fortune on it with FOCIX. And, the Charlie Fernandez fiasco.
I've done very well following his early advice on BAC and in holding FAIRX through most of last decade.
Now, I just keep my FAAFX holding out of sight ... one of the few I try not to fuss. Hmmm, come to think of it, I don't fuss SIGIX or DODGX much either (unless the latter falls below 10-mo SMA
Maybe the Great Recession created more deep value opportunities that, unfortunately, are simply more volatile than in times past. Not to say it's changed always, just now. I also believe he sees financials within his circle of confidence. Often citing savings bank failures in the '80s.
So, for him at least, the volatility landscape had to change given the deep value nature of his strategy and the opportunities that have presented themselves.
That simple.
Well, at least he realizes that.
"And, to Scott's point, on when BB may have turned. I believe it was 2011 and he went all financials."
I understand that some people don't like diversification. However, I'm not going to sit and trade all day. Neither is a mutual fund.
I like Visa (to use an example.) Actually, I really like Visa. However, I would not want Visa to be half my portfolio. I have a good deal in various themes (credit cards, rails, etc.), but there is an attempt to orchestrate the portfolio so that I don't start feeling like one theme wholly and completely dominates daily, weekly, monthly or yearly performance. I really would not want to be so heavily reliant upon one name, either. This is just me, but if I saw a mutual fund I owned with half the portfolio in one name, I'd be out of it.
When you have a mutual fund like Fairholme set up like it is currently, the manager is asking for a level of belief that I don't think most investors in this day and age have, as these bets are going to take a long time to play out. Or are taking longer to play out than thought. Or in the case of Sears will play out when pigs fly.
It's almost better set up as a hedge fund where people are locked in until the occasional redemption period. Berkowitz saying that those invested with him now are "in it for the long haul" is laughable. When you have a fund whose performance is based largely around a few long-term bets (including one that is highly risky from the standpoint of its half your portfolio and the same company you said you'd walk away from in 2009 because you didn't understand its derivative book), once the performance starts to lag for 1,3 and even 5 years (people can't tolerate under-performance for 3-6 months in this day and age), people exit. I can't believe FAIRX still has the AUM it has, but it's down.
Mutual fund holders aren't going to wait for your thesis on Sears to play out. There's been so many examples of flight from star managers (Heebner and CGM Focus, which I still say was over-and-done once Cramer called it his favorite mutual fund on a morning TV show) that that should be obvious to anyone in the industry.
http://www.cnbc.com/id/102390278?__source=yahoo|finance|headline|headline|story&par=yahoo&doc=102390278
People who've shopped there recently don't believe it in the comments. I went into a Sears store a few months back and the lack of care apparent in the store's upkeep was clearly visible.
The belief that the "Shop Your Way" campaign will save them is delusional and the idea that Sears will somehow be a big player online in an era of Amazon and other such companies is absurd. The theme that Sears is trying is simply an attempt to buy more time.
I learned something new in the comments section: "2 of the most incompetent CEOs that RSH has EVER had came from Sears/Kmart and were devotees/disciples of Eddie Lampert - Julian Day (who was head of Kmart when it came out of bankruptcy) and Jim Gooch. Both, just like Lampert, were $ people who knew and knows NOTHING about retail." If true, that's interesting.
The other issue that concerns me is that I have little confidence that this won't turn into a "Heads I Win, Tails I Win" for Lampert as he financially engineers himself a sweet payday while the company crumbles. I have absolutely no belief that he's looking out for anyone but himself and his hedge fund, as evidenced by the loan he gave the company backed by choice real estate. If I remember correctly, Berkowitz tried to participate in that via JOE (sorry Bruce, JOE is not your Berkshire, never was), but JOE was having none of it.
Lampert was screwed by 2008. If the real estate was the thing, he should have started it in motion the second he got there. Now the end result isn't nearly as certain (and as for the real estate story, while Sears has some "A" real estate, how much of it is "D" and "F") and the company has deteriorated significantly.
And what's with Berkowitz's mixture of buys and sells? If it's so freaking wonderful, why sell a share?
Dec 16, 2014 BERKOWITZ BRUCE R
Beneficial Owner (10% or more)
5,000 Indirect Purchase at $31.18 per share. 155,900
Dec 12, 2014 BERKOWITZ BRUCE R
Beneficial Owner (10% or more)
14,600 Indirect Sale at $31.99 per share. 467,054
Dec 11, 2014 BERKOWITZ BRUCE R
Beneficial Owner (10% or more)
7,000 Indirect Purchase at $32.04 per share. 224,280
Dec 10, 2014 BERKOWITZ BRUCE R
Beneficial Owner (10% or more)
8,000 Indirect Purchase at $32.31 per share. 258,480
Dec 2, 2014 BERKOWITZ BRUCE R
Beneficial Owner (10% or more)
12,700 Indirect Sale at $34.97 per share. 444,119
Dec 1, 2014 BERKOWITZ BRUCE R
Beneficial Owner (10% or more)
26,700 Indirect Sale at $35.65 per share. 951,855
We don't really need signs to tell us the inevitable, do we?
http://static1.squarespace.com/static/53962eb7e4b053c664d74f3d/t/54d908d8e4b03ba419c05289/1423509720037/February+2015+Conference+Call.pdf