The Fairholme Allocation Fund reopening to new investors

TheShadow

http://www.sec.gov/Archives/edgar/data/1096344/000091957415008282/d6136779_497.htm

497 1 d6136779_497.htm

FAIRHOLME FUNDS, INC.

The Fairholme Fund
The Fairholme Focused Income Fund
The Fairholme Allocation Fund

Supplement dated November 17, 2015 to the Prospectus of The Fairholme Fund dated March 27, 2015, the Prospectus of The Fairholme Focused Income Fund dated March 27, 2015, and the Prospectus of The Fairholme Allocation Fund dated March 27, 2015 and the Summary Prospectus of The Fairholme Allocation Fund dated March 27, 2015.

The Board of Directors of Fairholme Funds, Inc. has approved the re-opening of The Fairholme Allocation Fund (NASDAQ: FAAFX) ("The Allocation Fund") to new investors. Effective November 18, 2015, The Allocation Fund will offer its shares to new investors and begin accepting orders for the purchase of Fund shares from new investors.

The first four paragraphs under "Purchase and Sale of The Allocation Fund Shares" in the summary section of the Prospectus and Summary Prospectus of The Allocation Fund are deleted in their entirety and replaced with the following paragraph:

Purchases of shares of The Allocation Fund are subject to the following minimum investment amounts (which may be waived by the Manager in its discretion):

The following paragraph is added as the second to last paragraph under "Purchase and Sale of The Allocation Fund Shares" in the summary section of the Prospectus and Summary Prospectus of The Allocation Fund:

The Allocation Fund reserves the right to limit the sale of shares to new investors and existing shareholders at any time. The Allocation Fund may reject any order to purchase shares, and may withdraw the offering of shares at any time to any or all investors.

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The first five paragraphs under "HOW TO BUY SHARES OF THE FUNDS" in the Prospectus of The Fairholme Fund, the Prospectus of The Fairholme Focused Income Fund and the Prospectus of The Allocation Fund are deleted in their entirety and replaced with the following paragraph:

Shares of each Fund are available for purchase by both new investors and existing shareholders. Each Fund may reject any order to purchase shares, and may withdraw the offering of its shares at any time to any or all investors.

* * *

YOU SHOULD RETAIN THIS SUPPLEMENT WITH YOUR PROSPECTUS AND SUMMARY PROSPECTUS FOR FUTURE REFERENCE.

Edmond

FAAFX has a cash reserve of 24% of NAV per GoogleFinance. But also 23% in a single stock.. Sears (SHLD). Very strange that a go-anywhere fund (can own stocks and bonds) would throw 23% in a single equity --- seems to 'echo' Sequoia fund's 30% position in VRX. (Were any of us inclined to put +20% in an equity, BRK.b, GOOGL, or PEP might be candidates, but Sears?)

And about that one equity (SHLD), its been a total flop -- and NOT an unpredicatble flop. Anyone on this board been to a Sears store lately? Bought anything there? With other mall-centric retailers (M, JWN, JCP) reporting poor results, how do you think SHLD's November quarter is going to look? Sear's issuer (debt-) rating is Caa1. Personally, I wouldn't LEND money to a company with that rating, let alone own its equity.

Why does a fund with 24% in cash now decide to re-open? -- Is it going to build a bigger cash position? Wouldn't it make sense for the fund to first deploy the cash it has? Is the fund suffering redemptions (wouldn't surprise me)? If so, why wouldn't it just sell some of its SHLD shares (or just allow its cash pile to dwindle?)

Obviously, I am NOT a candidate to send Berkowitz my money. I'd be curious to hear from someone who holds FAAFX as to what the attraction is.

VintageFreak

The minimum is 25K, so any advantage if it is exists is meaningless to me. I'm only in FAIRX because I was able to get in cheaper and I have never invested distributions back.

scott

Edmond said:

FAAFX has a cash reserve of 24% of NAV per GoogleFinance. But also 23% in a single stock.. Sears (SHLD). Very strange that a go-anywhere fund (can own stocks and bonds) would throw 23% in a single equity ---

I've only been yelling about SHLD since Fundalarm and back then people told me that, "It's a value stock!" Berkowitz and his Sears thesis have been completely wrong for years now, not to mention slimy (Berkowitz: “Sears does just enough, so they're not breaking the terms of their very long lease.” http://www.investmentnews.com/article/20120918/blog06/120919939/why-bruce-berkowitzs-bullish-stance-on-aig-is-paying-off)

To me, Berkowitz/SHLD is kind of like aspects of SEQUX/Valeant and Nygren/WaMu all wrapped up in one. Plus, with SHLD bonds, FAAFX is closer to 30% Sears.

VintageFreak

The last time I calculated from SAI, Berkowitz had $106 Million in FAIRX. Not sure how much he has in SEQUX.

We all know how Berkowitz invests. You go in assuming that. Sequoia and to a higher extent Oakmark, not in same league. Berko could go 90% SHLD. I don't think the other two would dream of that. I can hold FAIRX only knowing how much manager has in the fund, not otherwise.

expatsp

The anti-Berkowitz case is very clear. The pro-case is: great record in the past; huge personal stake in his funds (he owns over a third of FAAFX); high conviction; not an index hugger.

If I could do it again, I wouldn't have invested with him, but I invested early enough that I'm sitting on big capital gains in a taxable account. When the market as a whole gets near to what I think is a top (I still think we're at least a year away) I will sell, hope for the market to drop, then probably move into an index fund.

In 2010 there was no manager out there who looked better than Berkowitz: he'd beat the S&P by something like 10 points a year over the past decade, he'd avoided the worst of the 2008-9 crash, he had major skin in the game, tax efficient, etc... And now he's majorly underperformed since.

Maybe SHLD will eventually rebound and he'll look like a genius. I hope so.

But I'm increasingly thinking that to chase a star manager is to chase a mirage.

Sven

Problem is the past record has no relevance or poor prediction of future performance.

VintageFreak

Sven said:

Problem is the past record has no relevance or poor prediction of future performance.

You know, I want have a saying of my own. I want to say past performance IS a predictor of future performance. I want to say "good past performance predicts poor future performance".

Old_Joe

Yeah, I can see that OK, but I'm not sure the reverse is true. That would seem to suggest that any sort of past performance predicts poor future performance. Hmmmm...

Charles

Good grief.

VintageFreak

Charles said:

Good grief.

Yay !!! We made Charles REALLY think. He he he.

Old_Joe

Yes!!