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Fairholme latest letter


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The guy is brilliant but I wish he would close his fund.

 

 

Ditto.  On behalf of certain [unqualified] clients I have some money in Fairholme and wrote him earlier this year.

 

 

Bruce Berkowitz

Fairholme Capital Management, L.L.C.

1001 Brickell Bay Drive, Suite 3112

Miami, FL 33131

Telephone: 305-358-3000

 

Date 04/27/10

 

Dear Bruce,

 

Naturally, I applaud your temperament over the last two years.

 

The below discussion will not at all be new and you will certainly recognize the issues of my concerns and I hope you choose to act on them in short duration.

 

From my perspective, $10 billion is the point at which size really begins to constrain performance, the consequence of a rapidly decreasing universe of investments. With respect to Fairholme, you must be thinking whether it makes sense to keep the fund open or otherwise to close it to new investors.

 

If to keep it open there must be clear evidence that in doing so, current investors will not suffer as a consequence. That is, the rate and duration of compounding returns that you can reasonably expect to earn while open to new investors must either be equal to or exceed the reasonably expected returns of Fairholme as a fund closed to new investors. Prior to the asininities of the last two years, size was an increasing concern, however the ensuing fiasco provided conditions which made incremental (external) capital attractive to all Fairholme investors. You addressed the question of size during a conference call last year, and I believe you were completely correct in your response, brief as it was. However, these conditions are not what they were a few months ago and I don’t know that a compelling argument can currently be made in favor of keeping the fund open-unless you are expanding your operations to international markets, you intend to employ future capital in the purchase of private businesses, or contributions are offset by distributions/redemption’s, but even under these circumstances it would be a difficult argument.

 

Sincerely yours,

 

Matt Pauls

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  • 6 years later...

The 2016 Annual Letter is out...

 

http://www.fairholmefundsinc.com/Letters/Funds2016AnnualLetter.pdf

 

Bottom line: Sears has degraded net asset values, but there is still much left and the company is fixing its cash drain.

 

It is hard to respect a man who, at some point, can NOT admit a mistake. Buffett has always been great about admitting mistakes.

 

(By the way...I revived this old thread to point out that some members of this board seem to have a greater mind for value investing than Morningstar's Manager of the Decade™. If Berkowitz had listened to those above this post and perhaps kept his Pfizer, White Mountains Insurance Group and Bank of America holdings instead of doubling and tripling down on Eddie Lampert...)

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Sounds like an argument for large caps vs smaller companies.

But why large caps?

I think because large caps represent some measure of success and stability - a minimum threshold. Maybe you give up some upside but you certainly cover your ass..ets.

Also it isn't entirely clear that smaller outperforms bigger, perhaps very,very big but the range is wide and my experience is that a well timed large cap investment is no slouch relative to a smaller company which you don't know - ahead of time - will be the next gold mine or the next dud...I also notice many successful startups are going public as large caps and still are doing well.

 

 

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  • 4 weeks later...

The 2016 Annual Letter is out...

 

http://www.fairholmefundsinc.com/Letters/Funds2016AnnualLetter.pdf

 

Bottom line: Sears has degraded net asset values, but there is still much left and the company is fixing its cash drain.

 

It is hard to respect a man who, at some point, can NOT admit a mistake. Buffett has always been great about admitting mistakes.

 

(By the way...I revived this old thread to point out that some members of this board seem to have a greater mind for value investing than Morningstar's Manager of the Decade™. If Berkowitz had listened to those above this post and perhaps kept his Pfizer, White Mountains Insurance Group and Bank of America holdings instead of doubling and tripling down on Eddie Lampert...)

 

whatever happened to.. 'we count the cash'??

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