If investing with Berkowitz, any reason to prefer FAIRX over FAAFX?

claimui

Assume you have the minimum for FAAFX and will invest in one of these two funds. I read David Snowball's profile of FAAFX from a while back and it seems this fund should be unequivocally preferred over FAIRX:
- Lower expenses (after waivers)
- Smaller asset base
- Ability to pursue "small quantity ideas" that FAIRX cannot
- Possibility to "ride on Fairholme’s coattails" and get access to the same opportunities as FAIRX

Other than the above, the funds seem similar to me. The funds seem to hold mainly the same stocks (but in different proportions) and they have similar performance (both terrible, with FAAFX a little less so). So it seems either way you are getting the same Berkowitz strategy, for better or worse.

Any other considerations where somebody might prefer FAIRX over FAAFX? Basically my situation is that I am already in FAIRX and will probably continue to invest with Berkowitz, but I'm wondering if it makes sense to keep doing so through FAIRX or if I should be moving to FAAFX. Thanks in advance.

NickF

I'm in the same position as you. If this were July, I would say FAAFX. Both of these funds have a lot of issue specific risk and a very concentrated, so they will be volatile both in relationship to themselves as well as any benchmark. It is REALLY difficult to tell how these strategies will differ over time and what their relative performances will be.

Its important to note their portfolio's are different. Switching from FAIRX to FAAFX would be selling the lagger and buying the winner. That's something I would only want to do if I had a very good reason, especially since the funds have the same managers.

scott

The thing that concerns me about FAAFX - at least at last fund update - is around 50% of the fund being in two companies. That can either be really right or really wrong.

MikeM

FAAFX has been on a tear the last 3 months, up ~19% and #1 in it's peer group. But I agree with Scott. That high concentration is a bit scary.

That said, I bought the fund last February - portfolio unseen at the time. I wouldn't do that again, but I bet on a good manager having total flexibility and a small asset base to work with. I'll still hold the fund long term for those reasons. I believe Berkowitz will win in the end.

claimui

I also noticed FAAFX's high concentration, but what should we make of it? Do these funds have truly different strategies? I don't think so, because FAIRX is about equally weighted in AIG, and also holds MBIA (but significantly less). Their other holdings are similar.

I'm inclined to think that Berkowitz has the same strategy for both funds, but at times there will be some difference because maybe he simply couldn't "fit" 29% of FAIRX in MBIA without distorting the market. In that case FAAFX could be the more "pure" expression of Berkowitz' management style (again, for better or for worse).

NickF's point about recent performance is well-noted. I'm not going to switch into FAAFX right away, but I will look for a suitable exit point with the idea that FAAFX will be the more suitable long-term holding. For now this is more about where to put new money. Depending on my brokerage fees and tax considerations, I am less inclined to put new money into FAIRX now knowing that I will sell it all in the near future.

VintageFreak

I think anyone buying a fund that's essentially a bet of financial is plain nuts. If you bought it in 2008 is one thing. Wait for another 2008. I am. And yes, it is some Fairholme fund that I'll buy. The high minimums make that even more necessary. I mean 10K in FAIRX is bad enough. 25K for FAAFX. You better be 200% sure you will but and only sell in retirement.

I'm buying AUXFX instead. APPLX too.