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This is just a guess--it probably says in the analyst report that you should sell it because you need to be a long term investor and should ignore a short term lag. I can't imagine M* would dismiss a fund so quickly after crowning it Manager of the Decade.
It seems you win the gold star. A M* analyst, Russel Kinnel, writes:
We knew that hot money was flowing to Fairholme Fund. We also knew it would fly out when the fund hit its first bump. Still, it's kind of shocking that $1 billion would zip out of the fund in April. ... I say good riddance hot money.
Morningstar has not downgraded the fund - it still has five stars overall (though its three year rating is now down to four stars). I'd say that it has downgraded the investing public.
Even after a considerable underperformance this year, FAIRX outperforms SP500 for the last 3 years. This does not prove anything. I am certainly nervous since I invested there. I read the comment by M* as a bitter joke that if anybody makes decisions based on few months of underperformance of a fund which was a solid performer for more than 10 years, they should not be in the fund, so their decision to run away is correct.
If the downgrade comment is referring to star rating, it is purely backward looking quant rating. However, the downgrade comment is probably about analyst opinion piece.
To the original question, has anyone sold FAIRX? YES!!!
I have been a long-time investor in FAIRX and in fact, had nearly 20% of my portfolio invested in it. Early this month I reduced my position by 50% and as of EOB today, I am reducing another 50%. So my current investment will be 5% of my portfolio.
I didn't want to do this, BUT, I just don't see the "financials" or AIG moving up significantly in the foreseeable future; maybe next year, but not now. JMHO.
I also do not like to second guess money managers and in particular BB, but you have to wonder what are his reasons for sticking-to-his-guns on these stocks. I believe part of the answer is the concentrated portfolio. It is inhibiting his ability to move in and out of positions w/o affecting the share price and thus is having a major impact on the fund's performance.
Holding only 20 stocks seems to be a real problem considering the AUM, causing BB to invest and maintain a high percentage in them (i.e. AIG 8%, still) even though they are not performing.
I will continue to hold FAIRX and most likely will increase my position at some point in the future, BUT, not until I see some real changes andperformace improvement.
I can't blame Matt for taking some of this fund off his table.
I've been invested in FAIRX for three years. My last investment was made in Feb 10. At that time I felt that I was to my limit in this fund, at about 5% of my total portfolio. Loading the boat on any one fund has never appealed to me, especially concentrated portfolio funds.
But that was all in the past. What do I do now? I am inclined to stay put. I am not uncomfortable with the fund, or BB or my investment amount. I feel that BB will stick with his present plan,
I am 61 and retired. I don't consider my opinion to be worth much, but I do thank you for reading it anyway.
I have been a long term investor with FAIRX for the past 5 years and very happy that I was. But I sold over 98% 2 months ago. I am now 73 and from my experience once a fund has such profound changes and goes south it may take quite a while to reverse. At my age I would rather divide the very large amount of investment I had with FAIRX into about 3 or more other promising funds and spread the chance of success. I could be wrong but I will hold enough in FAIRX to return in case he closes the fund. I will feel a more intense emotion holding and regretting it than keeping it happily while it reverses smartly . Each of us has our own horizon and comprehensive portfolio needs. These are not easy decisions. Burt S.
and prinx may have hit the nail on the head. nothing goes up for ever. let's hope FAIRX goes down another 20% and then let's buy it for a trade. hyuk, hyuk.
Dave if you view of the fund has changed and you find it unappealing why don't you take a bit of your investment back. Sometimes, we should admit mistake, take a loss and find a more attractive home for our money. The moves need not be all in or all out. Incremental changes should be OK to build a position and also to reduce it.
I found the last 2 items in the article confusing. Dunno how they help me sell the fund. Or he is saying Fairholme has no "process" anymore? And regardless dunno whether he is admonishing investor for selling on weekness or something else.
Everything else he has said has been said before. People will be coming out of the woodwork now bashing Hussman and Berkowitz. I am waiting for the fall, especially of the latter.
My problem is Ritholtz is trying to fan the fire by pretty much bashing FAIRX. But he is pretending to not do so by penning "when to sell a mutual fund". No example of fund is necessary or if at all, keep it abstract. The comment about feud with hedge fund manager is a dead giveaway of the Berkowitz-Einhorn tiff.
I don't do bullshit, Barry. Just come out and have the guts to bash Berkowitz. I had the guts to bash Bill Miller before his fall, but then no had to listen to me
Personally, I don't think the bottom is in FAIRX until he comes on CNBC and tells Bartiromo she's "looking good". He has done that before. Watch for him to do it again. That will be the beginning of the end.
I'm a little surprised that Ritholtz didn't name names, as who he's discussing is obvious.
"CNBC and tells Bartiromo she's "looking good" Ugh, Bartiromo probably wishes she'd gotten out of CNBC when the getting was good. Berkowitz could hit on Becky Quick and say he was one discussed as a Buffett replacement.
Speaking of CNBC, anyone catch their constant promotion of Joe Kernan's new book, "Your Teacher Said What?!: Defending Our Kids from the Liberal Assault on Capitalism" I thought it was a joke until I looked it up on Amazon (and then he dragged his kid who is billed as co-writer out to promote the book.) The most unintentionally funny thing ever on the network. I'd rather Becky Quick or Amanda Drury than Bartiromo, but eh (shrugs)
Cisco stock has been dropping (about 33%) for the past 1 year.
Fairholme bought Cisco throughout Q1 --- it's about 4% of their portfolio now.
Cisco stock has been trending down for the past year and even the past few months so that obviously isn't helping to provide a performance uptick for the fund lately but helpful from a buying perspective so far this year. We'll see how this turns out longer term.
Gurufocus...."Many gurus view this as cheap for a company with great financial strength, a few lackluster quarters and some acknowledged challenges. For fiscal year 2010, it had free cash flow of $9.2 billion, its second strongest year in 10 years. In the third quarter of fiscal 2011, cash flows from operations were $3.0 billion, increased from $2.6 billion in the second quarter of fiscal 2011, and flat from the third quarter of fiscal 2010. Cisco also has cash, cash equivalents and investments of $43.4 billion as of the end of the third quarter 2011, up from $39.9 billion at the end of fiscal 2010."
Cisco certainly has terrific potential, but it's a matter of how to go about realizing that value, and the recent announcement of restructuring may help in the longer-term. Similar situation with Microsoft, which I'd like to like but don't (yet.) HP also looks to be falling into that category, too.
I've been a long-time investor in FAIRX, but sold my entire position this week. My decision had nothing to do with M*, since I don't use them. I have always advised that if people are uncomfortable with a fund, they should sell it. I was becoming uncomfortable with huge bets on the financial sector and Bruce's hands on involvement in St Joe which I viewed as a distraction for him. I've used part of the proceeds to add to my position in ag commodities (DBA) and reestablish a position in ag companies (MOO), pursuing a global food and water theme (I also own PIO) that I had gotten away from until now.
Some of us have to get over the feeling that we have to be loyal to Berkowitz in view the rewards we have received from him over the years. Just as we sold funds , some of us years ago, to invest in Fairx we must also evaluate Fairx as a buy or hold now. I made my decision in March and I will come back if the scenario changes but I do not see that happening for a while . Mean while I want my money compounding and not waiting for the sectors to rotate into financials especially Sears and AIG
That definitely makes sense especially when we talking about different age groups.
I'm still in my 30's but some here are in their 60's and 70's who have trimmed back or sold out of FAIRX. By all means, I probably would too if I were 70. You had conviction and guts in your mid 60's just to hold FAIRX the past 5 years. Congrats on that.
It's not that Berkowitz is done or that he isn't a great investor. I don't think it's a flaw in the overall management style (nor did I ever think the fund was low-risk), but simply a sector bet that he overstayed and while he can admit he was wrong about AIG (although after his friends in the industry apparently told him he was an idiot to invest in it - quite honestly, if a manger said he talked to people in the industry who told him he was an idiot and he didn't take that into account and that "mere mortals" would have difficulty getting AIG, I'd be displeased, but that's just me), I'm doubtful that he will give up on the financial bet any time soon.
It's also a matter of whether or not one wanted to rely on a portfolio chock full of an "all-star team of 'Too Big To Fail'" not long after one of the worst financial crises in the nation's history. You can think these companies are some sort of magnificent value, or you can think that their problems are far from over and would rather not have to sit with these companies that didn't learn a thing from 2008 while they work their problems out potentially over months and years. As for Bank of America, Berkowitz apparently started buying at $15 (http://blogs.wsj.com/marketbeat/2011/05/09/berkowitz-on-aig-i-was-wrong/?mod=google_news_blog)
It remains interesting to me that Berkowitz can discuss walking away from financials that he doesn't understand to becoming one of the biggest shareholders in the universe, and a main reason that continues to come to mind was that he believed that to some degree he was "shaking hands with government" (hence the ridiculous thank you note to government). Either way, much like Heebner's timing of the energy/materials exit, Berkowitz overstayed in financials, and how nimble he can be is questionable, and whether he even wants to move on from the bet.
The whole thing kind of reminds me a little of Kinetics Paradigm (WWNPX), which weathered the 2001 crisis beautifully and did terrific until they decided to stay in financials throughout all of 2008 and surprised those who were expecting a repeat performance of the 2001 downturn (although acting like shareholders should be thrilled in the shareholder letters was a bit much.) That fund didn't go away, and it's actually worked its way back in the last couple of years, although a lot of the financials appear gone. However, I don't believe I've heard one word about it on this board in a couple of years.
No one talks about CGM Focus much, either, although poor Heebner looks to be having another not so great year. Will Danoff and David Decker (who I hope will show up somewhere else after leaving Janus) have had off years, as has Romick and Yacktman. However, when a fund becomes reliant on something, that's another issue and timing is another. How well does a manager move on when it becomes apparent that something that's such a large element of the fund has clearly gone against them? Heebner's issue over the last few years would appear to mainly be mistiming (too early/too late) his continual moves from sector-to-sector.
Things change (quickly these days.) If you are comfortable, with Berkowitz (or Heebner, or whatever the names of the Paradigm managers are), then great. However, at what point does underperformance (see Heebner this year again) start to keep one from other opportunities that may appear. If it's a sensible part of your portfolio, fine. However, I tend to believe many who hold Fairholme (or held CGM Focus during its prime) are holding it as a fairly substantial portion of their portfolio.
At some point, people are going to catch a turn for Heebner, and investing in a fund manager is in a way another element of the investment. If you think Heebner has not taken stupid pills and due for a period of being back on track, you'd look at CGM Focus.
Part of me is a little tired of managers as financial media stars. I don't want a manager who's always on CNBC or in every article on Morningstar. I just want someone who quietly goes about finding quality companies. Yacktman, Ralph Shive and Todd Ahlsten of Parnassus are examples, among others.
Apparently, Berkowitz compared Sears to Apple before its turnaround, and I'll say this: Eddie Lampert is no Steve Jobs. He can, however, buy back shares really well. How that will lead to a magical turnaround for Sears at the retail level is beyond me.
I do like St Joe for the longer-term, although that situation was handled poorly. I do love Brookfield Asset Management (although particularly the spin-offs). I do also think that Berkowitz is an excellent investor. However, he can do wrong like anyone else, and then it becomes whether or not one wants to stay and how quickly the fund can make changes. If it becomes apparent that the fund isn't going to move, then it's up to the shareholder whether or not they want to wait for what may become an extended period.
I don't see all the reason for upset towards those who do not, as some people don't want to rely and wait around for the value to be realized in the financials. Berkowitz clearly does, it would seem. He may be right, they very well may be right to leave. To those who want to wait, I wish them luck.
And I didn't even get into the fact that Allocation may as well be called "Fairholme II: The Sequel", and a different fund ("Fairholme International", perhaps?) would have attracted new money from current FAIRX holders, whereas as of right now I have no idea why anyone who owns FAIRX would also want to own the Allocation fund. Hmmm... anything else? I guess I'll throw in the commonly noted complaint that he should have closed the fund already.
And I'm sure I'll probably get yelled at for this post, but it's been a while since the board has been debate-y.
Scott, I could not agree with you more on just about everything you've said. I am a long-time holder of FAIRX (long "before" AUM hit1b) and it "was" a significant % of my portfolio, ~20%. This month I have reduced my portfolio percent in FAIRX to a mere 3%.
I haven't lost faith in BB, he is human and does make mistakes, and has admitted so with regards accumulating AIG and the "financial" too agressively. He is allowed to err once in a while!
Furthermore, because of FAIRX concentrated portfolio (20 Stocks) and its AUM, it is very hard to move out of positions without negatively affecting the share price of that particular stock. If he owned 25-30 stocks, maybe this affect could be mitigated. But anyway, as you stated, BB is more than willing to wait the "financials" out; I cannot, thus I have moved the lion's share into another fund.
If and when BB is right (or he alters the holdings) and FAIRX begins to perform again, I probably will allocated more dollars to it, but NOT until then. I don't have the luxury of waiting 9,12,15 months for BB to be right, so I have to move on, for now. Things like this happen to the best investors throughout history. Hopefully, this is just a blip, on an otherwise pristine BB resume'.
Absolutely. I think there will be a time when the ship is turned around, but it depends on whether or not you have the luxury to wait (size of position, risk tolerance, etc.) In terms of manager loyalty? I don't know, as there's really no way to know what the future holds and money - especially in a world where technology allows money to move so quickly - asks "what have you done for me lately?" I'd be curious to know what the AUM at CGM Focus is at this point versus three years ago.
Say what you will about Jim Cramer, but he was a successful hedge fund manager at one point and "Confessions of a Street Addict" has some good passages about his sudden realization that people who had been with him for many years had absolutely no problem leaving the instant he had a bad one. Cramer came back (and then became annoying) and Berkowitz will likely come back, too. However, the issue with Fairholme is not only the concentration, but the sector bet turning sour. It becomes the desired turnaround of that (and whether he even desires to leave that bet), and whether or not one has the luxury to wait - and that decision has to be up to the individual and there's not really a right or wrong as much as what one believes is in their best interests. Those who want to reduce their exposure to Fairholme, but consider returning at some point can keep a foothold.
You are absolutely right about the concentrated SECTOR bets. That just may be the bigger issue; but holding just 20 stocks in a fund with 18B in AUM, certainly compounds the issue!
I will keep a foothold in, and eye on FAIRX and as I stated before, if BB alters the holdings and/or FAIRX begins to perform and still meets my needs, I will add to it. BUT, time will tell (sorry for the cliche').
Like I said before age can also play a role in terms of how long one is willing to wait it out. We have some people here who are in their 60's and 70's who can't wait that long. Frankly, I'm even suprised the mid 60 year olds and 70 year olds were still invested in FAIRX until recently.
Don't forget that I also look at my portfolio as a whole. FAIRX plays a "wild card" slot and something I've mentioned before. It does a lot of special situation plays including distressed investments and is also willing to hold ample cash as well as invest in fixed-income. It was never to be the fund to replace your midcap or largecap allocation.
FAIRX sold off their GPP investment and so with the 4% Cisco pickup and say about 20-30% in cash, it has let's say 65% of it's portfolio in Financials. If FAIRX was 10% of your portfolio --- you're talking about a 6.5% contribution to Financials in your portfolio --- hardly anywhere near a sizable risk of any sorts.
Some of you guys are more cautious because of maybe more small number of concentrated fund holdings and so can afford to make less mistakes with fund choices.....however, I am also invested in index funds. My favorites are Midcap index funds --- Traditional marketcap-weighted, AlphaDex and Pure Style S&P indexes. I also like the alternative weighted indexes such as Fundamental indexes and some of the Dividend indexes.
Now I am also intrigued by Greenblatt's Value Weighted Indexes:
So looking at the overall balance is why FAIRX has been a good, unique "wild card" addition for me. It's the unique overall blend that I like. I hate to eat garlic straight-up .... but when sliced into little pieces to sprinkle and steam on top of a nice white fish (or fry), the mix can be awesome.
Now that lately there's been more and more alternative weighted or alternative value weighted index funds (e.g. Alphadex, Fundamental RAFI, Wisdomtree and Greenblatt's Value indexes) including some Russell Global style index ETFs that may come out in the near future --- I'm taking a closer look and gravitating more towards them as I am comfortable with "indexes" even though many people aren't. That surrounded by some great active Global value funds helps to give me peace and patience and a solid footing on a good portion of my portfolio and have no problems using a "wild card" fund in my portfolio that blends in nicely and adds a bit of uniqueness.
So yes, everyone has unique perspectives in how they view their overall portfolio and everyone has a unique makeup/composition which will affect their decision making.
Comments
http://mfi.morningstar.com/BlogArticle.aspx
(login not required; I don't have a subscription to Morningstar FundInvestor)
I have been a long-time investor in FAIRX and in fact, had nearly 20% of my portfolio invested in it. Early this month I reduced my position by 50% and as of EOB today, I am reducing another 50%. So my current investment will be 5% of my portfolio.
I didn't want to do this, BUT, I just don't see the "financials" or AIG moving up significantly in the foreseeable future; maybe next year, but not now. JMHO.
I also do not like to second guess money managers and in particular BB, but you have to wonder what are his reasons for sticking-to-his-guns on these stocks. I believe part of the answer is the concentrated portfolio. It is inhibiting his ability to move in and out of positions w/o affecting the share price and thus is having a major impact on the fund's performance.
Holding only 20 stocks seems to be a real problem considering the AUM, causing BB to invest and maintain a high percentage in them (i.e. AIG 8%, still) even though they are not performing.
I will continue to hold FAIRX and most likely will increase my position at some point in the future, BUT, not until I see some real changes andperformace improvement.
Matt
I've been invested in FAIRX for three years. My last investment was made in Feb 10. At
that time I felt that I was to my limit in this fund, at about 5% of my total portfolio.
Loading the boat on any one fund has never appealed to me, especially concentrated
portfolio funds.
But that was all in the past. What do I do now? I am inclined to stay put. I am not
uncomfortable with the fund, or BB or my investment amount. I feel that BB will stick
with his present plan,
I am 61 and retired. I don't consider my opinion to be worth much, but I do thank you
for reading it anyway.
Dave
I am now 73 and from my experience once a fund has such profound changes and goes south it may take quite a while to reverse. At my age I would rather divide the very large
amount of investment I had with FAIRX into about 3 or more other promising funds and spread the chance of success. I could be wrong but I will hold enough in FAIRX to return in case he closes the fund. I will feel a more intense emotion holding and regretting it than keeping it happily while it reverses smartly .
Each of us has our own horizon and comprehensive portfolio needs. These are not easy decisions.
Burt S.
http://www.ritholtz.com/blog/2011/05/when-should-you-fire-your-mutual-fund-manager-2/
Everything else he has said has been said before. People will be coming out of the woodwork now bashing Hussman and Berkowitz. I am waiting for the fall, especially of the latter.
My problem is Ritholtz is trying to fan the fire by pretty much bashing FAIRX. But he is pretending to not do so by penning "when to sell a mutual fund". No example of fund is necessary or if at all, keep it abstract. The comment about feud with hedge fund manager is a dead giveaway of the Berkowitz-Einhorn tiff.
I don't do bullshit, Barry. Just come out and have the guts to bash Berkowitz. I had the guts to bash Bill Miller before his fall, but then no had to listen to me
Personally, I don't think the bottom is in FAIRX until he comes on CNBC and tells Bartiromo she's "looking good". He has done that before. Watch for him to do it again. That will be the beginning of the end.
"CNBC and tells Bartiromo she's "looking good" Ugh, Bartiromo probably wishes she'd gotten out of CNBC when the getting was good. Berkowitz could hit on Becky Quick and say he was one discussed as a Buffett replacement.
Fairholme bought Cisco throughout Q1 --- it's about 4% of their portfolio now.
Cisco stock has been trending down for the past year and even the past few months so that obviously isn't helping to provide a performance uptick for the fund lately but helpful from a buying perspective so far this year. We'll see how this turns out longer term.
Gurufocus...."Many gurus view this as cheap for a company with great financial strength, a few lackluster quarters and some acknowledged challenges. For fiscal year 2010, it had free cash flow of $9.2 billion, its second strongest year in 10 years. In the third quarter of fiscal 2011, cash flows from operations were $3.0 billion, increased from $2.6 billion in the second quarter of fiscal 2011, and flat from the third quarter of fiscal 2010. Cisco also has cash, cash equivalents and investments of $43.4 billion as of the end of the third quarter 2011, up from $39.9 billion at the end of fiscal 2010."
Recent Cisco Quarterly transcript with John Chambers:
http://seekingalpha.com/article/269451-cisco-systems-ceo-discusses-q3-2011-results-earnings-call-transcript
- There'll be some job cuts
- Re-focus on core products and improve higher-end products (switches/routers)
- Focus on streamlining the organization
http://www.pcworld.com/businesscenter/article/227711/cisco_plans_job_cuts_drops_growth_target.html
the rewards we have received from him over the years. Just as we sold funds , some of us years ago, to invest in Fairx we must also evaluate Fairx as a buy or hold now. I made my decision in March and I will come back if the scenario changes but I do not see that happening for a while . Mean while I want my money compounding and not waiting for the sectors to rotate into financials especially Sears and AIG
Burt S.
I'm still in my 30's but some here are in their 60's and 70's who have trimmed back or sold out of FAIRX. By all means, I probably would too if I were 70. You had conviction and guts in your mid 60's just to hold FAIRX the past 5 years. Congrats on that.
It's also a matter of whether or not one wanted to rely on a portfolio chock full of an "all-star team of 'Too Big To Fail'" not long after one of the worst financial crises in the nation's history. You can think these companies are some sort of magnificent value, or you can think that their problems are far from over and would rather not have to sit with these companies that didn't learn a thing from 2008 while they work their problems out potentially over months and years. As for Bank of America, Berkowitz apparently started buying at $15 (http://blogs.wsj.com/marketbeat/2011/05/09/berkowitz-on-aig-i-was-wrong/?mod=google_news_blog)
It remains interesting to me that Berkowitz can discuss walking away from financials that he doesn't understand to becoming one of the biggest shareholders in the universe, and a main reason that continues to come to mind was that he believed that to some degree he was "shaking hands with government" (hence the ridiculous thank you note to government). Either way, much like Heebner's timing of the energy/materials exit, Berkowitz overstayed in financials, and how nimble he can be is questionable, and whether he even wants to move on from the bet.
The whole thing kind of reminds me a little of Kinetics Paradigm (WWNPX), which weathered the 2001 crisis beautifully and did terrific until they decided to stay in financials throughout all of 2008 and surprised those who were expecting a repeat performance of the 2001 downturn (although acting like shareholders should be thrilled in the shareholder letters was a bit much.) That fund didn't go away, and it's actually worked its way back in the last couple of years, although a lot of the financials appear gone. However, I don't believe I've heard one word about it on this board in a couple of years.
No one talks about CGM Focus much, either, although poor Heebner looks to be having another not so great year. Will Danoff and David Decker (who I hope will show up somewhere else after leaving Janus) have had off years, as has Romick and Yacktman. However, when a fund becomes reliant on something, that's another issue and timing is another. How well does a manager move on when it becomes apparent that something that's such a large element of the fund has clearly gone against them? Heebner's issue over the last few years would appear to mainly be mistiming (too early/too late) his continual moves from sector-to-sector.
Things change (quickly these days.) If you are comfortable, with Berkowitz (or Heebner, or whatever the names of the Paradigm managers are), then great. However, at what point does underperformance (see Heebner this year again) start to keep one from other opportunities that may appear. If it's a sensible part of your portfolio, fine. However, I tend to believe many who hold Fairholme (or held CGM Focus during its prime) are holding it as a fairly substantial portion of their portfolio.
At some point, people are going to catch a turn for Heebner, and investing in a fund manager is in a way another element of the investment. If you think Heebner has not taken stupid pills and due for a period of being back on track, you'd look at CGM Focus.
Part of me is a little tired of managers as financial media stars. I don't want a manager who's always on CNBC or in every article on Morningstar. I just want someone who quietly goes about finding quality companies. Yacktman, Ralph Shive and Todd Ahlsten of Parnassus are examples, among others.
As for Sears (which I got yelled at last year when I wondered why anyone would want to own it over $100), it would appear they are looking to other avenues for business: http://www.heraldsun.com.au/news/breaking-news/us-department-store-sears-pulls-dvd-porn-from-website/story-e6frf7jx-1226054866171
Apparently, Berkowitz compared Sears to Apple before its turnaround, and I'll say this: Eddie Lampert is no Steve Jobs. He can, however, buy back shares really well. How that will lead to a magical turnaround for Sears at the retail level is beyond me.
I do like St Joe for the longer-term, although that situation was handled poorly. I do love Brookfield Asset Management (although particularly the spin-offs). I do also think that Berkowitz is an excellent investor. However, he can do wrong like anyone else, and then it becomes whether or not one wants to stay and how quickly the fund can make changes. If it becomes apparent that the fund isn't going to move, then it's up to the shareholder whether or not they want to wait for what may become an extended period.
I don't see all the reason for upset towards those who do not, as some people don't want to rely and wait around for the value to be realized in the financials. Berkowitz clearly does, it would seem. He may be right, they very well may be right to leave. To those who want to wait, I wish them luck.
And I didn't even get into the fact that Allocation may as well be called "Fairholme II: The Sequel", and a different fund ("Fairholme International", perhaps?) would have attracted new money from current FAIRX holders, whereas as of right now I have no idea why anyone who owns FAIRX would also want to own the Allocation fund. Hmmm... anything else? I guess I'll throw in the commonly noted complaint that he should have closed the fund already.
And I'm sure I'll probably get yelled at for this post, but it's been a while since the board has been debate-y.
I haven't lost faith in BB, he is human and does make mistakes, and has admitted so with regards accumulating AIG and the "financial" too agressively. He is allowed to err once in a while!
Furthermore, because of FAIRX concentrated portfolio (20 Stocks) and its AUM, it is very hard to move out of positions without negatively affecting the share price of that particular stock. If he owned 25-30 stocks, maybe this affect could be mitigated. But anyway, as you stated, BB is more than willing to wait the "financials" out; I cannot, thus I have moved the lion's share into another fund.
If and when BB is right (or he alters the holdings) and FAIRX begins to perform again, I probably will allocated more dollars to it, but NOT until then. I don't have the luxury of waiting 9,12,15 months for BB to be right, so I have to move on, for now. Things like this happen to the best investors throughout history. Hopefully, this is just a blip, on an otherwise pristine BB resume'.
Say what you will about Jim Cramer, but he was a successful hedge fund manager at one point and "Confessions of a Street Addict" has some good passages about his sudden realization that people who had been with him for many years had absolutely no problem leaving the instant he had a bad one. Cramer came back (and then became annoying) and Berkowitz will likely come back, too. However, the issue with Fairholme is not only the concentration, but the sector bet turning sour. It becomes the desired turnaround of that (and whether he even desires to leave that bet), and whether or not one has the luxury to wait - and that decision has to be up to the individual and there's not really a right or wrong as much as what one believes is in their best interests. Those who want to reduce their exposure to Fairholme, but consider returning at some point can keep a foothold.
You are absolutely right, the concentrated SECTOR bets are also a huge problem, and maybe bigger than holding just 20 stocks! Great point!
You are absolutely right about the concentrated SECTOR bets. That just may be the bigger issue; but holding just 20 stocks in a fund with 18B in AUM, certainly compounds the issue!
I will keep a foothold in, and eye on FAIRX and as I stated before, if BB alters the holdings and/or FAIRX begins to perform and still meets my needs, I will add to it. BUT, time will tell (sorry for the cliche').
Don't forget that I also look at my portfolio as a whole. FAIRX plays a "wild card" slot and something I've mentioned before. It does a lot of special situation plays including distressed investments and is also willing to hold ample cash as well as invest in fixed-income. It was never to be the fund to replace your midcap or largecap allocation.
FAIRX sold off their GPP investment and so with the 4% Cisco pickup and say about 20-30% in cash, it has let's say 65% of it's portfolio in Financials. If FAIRX was 10% of your portfolio --- you're talking about a 6.5% contribution to Financials in your portfolio --- hardly anywhere near a sizable risk of any sorts.
Some of you guys are more cautious because of maybe more small number of concentrated fund holdings and so can afford to make less mistakes with fund choices.....however, I am also invested in index funds. My favorites are Midcap index funds --- Traditional marketcap-weighted, AlphaDex and Pure Style S&P indexes. I also like the alternative weighted indexes such as Fundamental indexes and some of the Dividend indexes.
Now I am also intrigued by Greenblatt's Value Weighted Indexes:
http://valueweightedindex.com/
So looking at the overall balance is why FAIRX has been a good, unique "wild card" addition for me. It's the unique overall blend that I like. I hate to eat garlic straight-up .... but when sliced into little pieces to sprinkle and steam on top of a nice white fish (or fry), the mix can be awesome.
Now that lately there's been more and more alternative weighted or alternative value weighted index funds (e.g. Alphadex, Fundamental RAFI, Wisdomtree and Greenblatt's Value indexes) including some Russell Global style index ETFs that may come out in the near future --- I'm taking a closer look and gravitating more towards them as I am comfortable with "indexes" even though many people aren't. That surrounded by some great active Global value funds helps to give me peace and patience and a solid footing on a good portion of my portfolio and have no problems using a "wild card" fund in my portfolio that blends in nicely and adds a bit of uniqueness.
So yes, everyone has unique perspectives in how they view their overall portfolio and everyone has a unique makeup/composition which will affect their decision making.