St. Joe Filing - Credit Agreement and SEC Investigation

[Ballinvarosig Investors]

they smell blood in the water. this is what ruined Bill Miller.

Bill Miller's downfall were his awful investments. When you're in the middle of a crash in a market (be it housing, tech, whatever), you don't try and catch a falling knife, especially when you're dealing with leveraged companies. I can't say I ever had time for Bill Miller. While he might talk the talk of being a value investor, he certainly didn't walk the walk.

[Guest Hester]

they smell blood in the water. this is what ruined Bill Miller.

Bill Miller's downfall were his awful investments. When you're in the middle of a crash in a market (be it housing, tech, whatever), you don't try and catch a falling knife, especially when you're dealing with leveraged companies. I can't say I ever had time for Bill Miller. While he might talk the talk of being a value investor, he certainly didn't walk the walk.

 

I completely agree. I have a very low opinion of Bill Miller as an investor. Even his 13 year consecutive streak of beating the market was kind of BS. If the performance had been measured starting in March, for example, instead of January, the streak wouldn't of existed.

 

Many of his big time wins turned out to be lucky. AOL he won big on, but they turned out to be maybe the worst acquisition of all time.

 

Miller, like Ken Fisher, is an asset gatherer/fee generator first, shareholder wealth creator second.

[mevsemt]

IMO this is an interesting little case study on investor psychology.  As I see it you've basically got 2 "things" going on during the last 6 months: 1)Involvement with JOE and 2) Lagging performance. 

 

People generally have strong, almost visceral, emotional reactions to loosing money (or seeing their neighbor make more money).  So having Berkowitz's involvement with JOE coincide with his lagging performance is giving everyone an easy "out."  In other words, I wonder if people are selling Fairholme because performance is lagging but telling themselves they're selling because of JOE?

 

So let me ask this: if Fairholme's performance had been stellar during his involvement with JOE do you think the fund would've faced the same redemptions?  My guess is "no."  In fact, I think people would've enthusiastically supported his involvement, saying stuff like "Berkowitz isn't afraid to get his hands dirty on behalf of his shareholders at Fairholme," etc.

 

Now let me ask this: if Fairholme had never been involved with JOE but still had 6 months of lagging performance do you think the fund would've faced the same redemptions?  My guess is "yes," but in this case people would've found some other convenient reason to justify selling. 

 

Anyway, just my 2 cents...

[rjstc]

  Parsad; You said

"I think that's kind of what my point is.  You trusted him for some time, and he did very well for you, yet now you are second guessing his judgement after he's been involved in this venture for about six months.  10 years versus six months.  It's why investors pull money at the bottom."

 

"Take a look at Mohnish's fund.  He was down nearly 70%, yet one of my own partners, whose family had capital with Mohnish, were thinking of pulling.  I told them that he didn't suddenly become stupid.  That it will take time, but he has more vested than anyone else, and would probably make their money back.  It may take some time, but he would most likely earn it back, and in the meantime he wasn't getting paid a cent."

 

  I agree with a large part of what you have said. However, selling out in the mid 30s which I did is not selling out at the bottom. Many people selling out now are selling out in the 30s. My recollection which is maybe wrong is there were not large redemptions in 08 and 09 like now. I may be wrong about that as I haven't checked back but that's my recollection. I do remember the price of Fairholme getting down to the 16s. A cut of about 1/2 from 32 or so. You would have thought that the "Small" investors would have been scared out in massive numbers then.

  Also, I don't remember Mohnish changing his fund strategy to include buying operating companies that he would have been responsible for. I would have stuck with him as I did with Berkowitz at the time. I remember him changing his allocation sizes but not much else.

 

    Mevsemt;Your question. Now let me ask this: if Fairholme had never been involved with JOE but still had 6 months of lagging performance do you think the fund would've faced the same redemptions?  My guess is "yes," but in this case people would've found some other convenient reason to justify selling. 

 

    Good question! Were there more redemptions in the market crash of 08 & 09 than there are going on now? As I stated above, peak to trough Fairholmes price went from about 32 to between 16 & 17. Now it's been back up as high as 36 or so. You would have thought the "Small" investor would have been spooked out thinking the whole world was crashing back then. Did that happen?

      I've tried to be careful of when a company is doing a great job sticking to their business and making a good return for their investors, then they decide to change their model or expand out of their area of expertise and they have to start worrying about something else. Not always, but often times their investors suffer even though the companies intentions are honorable.

Also there are some pretty good investors who don't believe this was a very good investment. Only time will tell who's right. But uncertainty isn't always good in investing and that may be what's happening with this. Also, if he proves he can handle this and continues  growing the value of Fairholme people can always buy back in. Most people probably weren't buyers at market lows but in the 20s or 30s anyway.

    To both, good discussion, Ron

 

   

 

     

[ubuy2wron]

they smell blood in the water. this is what ruined Bill Miller.

Bill Miller's downfall were his awful investments. When you're in the middle of a crash in a market (be it housing, tech, whatever), you don't try and catch a falling knife, especially when you're dealing with leveraged companies. I can't say I ever had time for Bill Miller. While he might talk the talk of being a value investor, he certainly didn't walk the walk.

 

I completely agree. I have a very low opinion of Bill Miller as an investor. Even his 13 year consecutive streak of beating the market was kind of BS. If the performance had been measured starting in March, for example, instead of January, the streak wouldn't of existed.

 

Many of his big time wins turned out to be lucky. AOL he won big on, but they turned out to be maybe the worst acquisition of all time.

 

Miller, like Ken Fisher, is an asset gatherer/fee generator first, shareholder wealth creator second.

 

I find it very interesting that you have "very low opinion of Bill Miller as an investor" first of all that is a pretty strong statement. I know little about Millers investment strategy but certainly I am aware of his reputation and his string of beating the S&P for a long period of time. I had a wholesaler in my office a few years back who pitched me on Miller and I was unable to determine after looking at his fund if Mr. Miller was lucky or smart so I passed. It turns out that with the number of funds out there it is likely that through chance at least one fund manager will be sporting a 10 year plus annual S&P beat record. I tried to explain this to the wholesaler pitching me but he would have none of it. One of the things that I have learned with the passage of time is how difficult being smart all the time is . The money management business attracts some of the best and brightest minds out there and I have a heck of a lot of respect for Mr Miller and anyone else who has posted decent long term numbers

[Guest Hester]

I find it very interesting that you have "very low opinion of Bill Miller as an investor" first of all that is a pretty strong statement. I know little about Millers investment strategy but certainly I am aware of his reputation and his string of beating the S&P for a long period of time. I had a wholesaler in my office a few years back who pitched me on Miller and I was unable to determine after looking at his fund if Mr. Miller was lucky or smart so I passed. It turns out that with the number of funds out there it is likely that through chance at least one fund manager will be sporting a 10 year plus annual S&P beat record. I tried to explain this to the wholesaler pitching me but he would have none of it. One of the things that I have learned with the passage of time is how difficult being smart all the time is . The money management business attracts some of the best and brightest minds out there and I have a heck of a lot of respect for Mr Miller and anyone else who has posted decent long term numbers

 

I mostly agree. As I said, if the performance was measured (that is to say began) in a different month, like march or June, the consecutive record wouldn't exist. So while I agree that the long term record is good the level of greatness is largely just a silly technicality. If Americans would of accepted the Chinese calendar, we might not even know who Bill Miller is. Beating the S&P for 10 consecutive years, just randomly, there is less than a .1% chance. It doesn't sound like much, but if there are just a million investors in the game for 10 years, then 1000 people will compile this record just by chance.

 

My low opinion just stems from what I have heard/read Miller say. Good long term returns are not enough. The fact that there are so many investors, there will statistically be plenty of lucky charlatans with great records. For a "guru" to gain my respect they have to have the record, and exhibit good judgement. I haven't been impressed with his invesment/research acumen. Just my opinion.

 

[Myth465]

I can understand leaving Berkowitz inmo his style has drifted slightly and he is making an all in bet on US financials. If he is too early, its the same as being wrong. I can understand if an investor doesnt feel comfortable with such an outsized bet on financials.

[A_Hamilton]

I think Berkowitz is a great manager, and he is positioned to outperform significantly over the next decade. Large cap financials are ridic cheap even with regulations going forward. Steve Romick was on Wealthtrack this week and said that he lost 90% of his asset base in the tech bubble. People always chase returns and then are shocked when they get burned.

 

All of this said, I hope his redemptions become significant enough to force him to sell down names and create some selling pressure in LUK, JOE, and SHLD. Unfortunately his fund is too small to have an impact on his other holdings.

[rjstc]

I think Berkowitz is a great manager, and he is positioned to outperform significantly over the next decade. Large cap financials are ridic cheap even with regulations going forward. Steve Romick was on Wealthtrack this week and said that he lost 90% of his asset base in the tech bubble. People always chase returns and then are shocked when they get burned.

 

All of this said, I hope his redemptions become significant enough to force him to sell down names and create some selling pressure in LUK, JOE, and SHLD. Unfortunately his fund is too small to have an impact on his other holdings.

    As I've said. I think many people stuck with Berkowitz during the biggest meltdown since the great depression. Certainly not anywhere near as many sold out like Romicks did back then.

    My question now is who is he becoming? Is he still going to be the Berkowitz I knew which I liked. Or is he going to start trying to be a Eddie Lampert? Ian Cummings? Warren Buffett? I'm not saying he can't be like them. But until he really explains what his new plan is or proves he can emulate those guys on the "Buying a business and running it side" and do it WELL I have questions.

  One last question. FAIRF has been under some selling pressure obviously. Why not buy FAIRF now rather than waiting for those stocks to dip? I think he carries enough cash in reserve and always has that he won't be forced into having to sell them off to cover redemptions. Thanks

[A_Hamilton]

I think Berkowitz is a great manager, and he is positioned to outperform significantly over the next decade. Large cap financials are ridic cheap even with regulations going forward. Steve Romick was on Wealthtrack this week and said that he lost 90% of his asset base in the tech bubble. People always chase returns and then are shocked when they get burned.

 

All of this said, I hope his redemptions become significant enough to force him to sell down names and create some selling pressure in LUK, JOE, and SHLD. Unfortunately his fund is too small to have an impact on his other holdings.

   As I've said. I think many people stuck with Berkowitz during the biggest meltdown since the great depression. Certainly not anywhere near as many sold out like Romicks did back then.

    My question now is who is he becoming? Is he still going to be the Berkowitz I knew which I liked. Or is he going to start trying to be a Eddie Lampert? Ian Cummings? Warren Buffett? I'm not saying he can't be like them. But until he really explains what his new plan is or proves he can emulate those guys on the "Buying a business and running it side" and do it WELL I have questions.

  One last question. FAIRF has been under some selling pressure obviously. Why not buy FAIRF now rather than waiting for those stocks to dip? I think he carries enough cash in reserve and always has that he won't be forced into having to sell them off to cover redemptions. Thanks

 

First, he was at 5% cash at June 30th. He is going to have to sell something to raise cash to meet redemptions (Morningstar estimated net redemptions of $1 billion for june). http://www.investmentnews.com/article/20110706/FREE/110709953

 

Second, people haven't sold as much Fairholme (relative to FPA) because not enough time has passed with his underperformance--$1 billion of withdrawals last month!--5%+ of the fund's money is gone!

 

On who Berkowitz is, he is the same great investor he has been the past 30 years. The current investment in banks is no different than his bet on banks in the early 90's (except that banks are probably cheaper this time around). He's more than proven his ability to get massive deals done through Hertz/GGP/Americredit, etc. Also, I don't think his sitting as chariman of JOE is really that big of a deal...his investment in financials is a back of the envelope calculation...normalize pre-tax pre-provision profit, subtract a normalized levels of chargeoffs, tax effect, multiply by 10, add excess capital and voila! each name is trading at a price to value of 0.7x or less (I'm oversimplifying, but not by much).

 

I don't own FAIRX for a host of reasons. I don't like open ended mutual funds' tax issues, I prefer to pick my own names, and right now in particular, I think I can get great exposure to the mega banks through the bank TARP warrants and put up less capital to do it, I could go on...

 

 

 

 

 

 

 

[txlaw]

I'm not sure that Berkowitz really is suffering from style drift. 

 

He appears to always have been a focus investor.  With respect to his heavy concentration in financials, he has made it abundantly clear that this is his sweet spot, and that he believes these large US financial companies are being severely undervalued by the market.  I tend to agree with him on his bet.

 

With regards to JOE, I can understand why people might be upset if they think he's sinking a ton of money into something that's worth $8 per share, but I don't get why people are worried that he is going to try to get heavily involved on the operations side.  Park Brady, the former CEO of ResortQuest (a former Leucadia subsidiary that was sold to Wyndham last year), was recently appointed the COO.  He will be the ops guy, and he has a pretty good track record.

 

I think Berkowitz's role as Chairman and Interim CEO will be focused primarily on being the face of JOE in meetings with potential investors from abroad.  Right now, there are a lot of dollars overseas, and the sophisticated holders of these dollars understand that the dollar is a bad thing to hold onto over the long run.  So the idea is to get these guys to develop on the land that JOE owns.  Build up the area so that the activity from industry, tourism, and government helps Florida out over the long run (that's why Charlie Crist is on the board).

 

If the area gets developed in the manner that Berkowitz hopes, JOE will be worth quite a bit more than what it's trading at.  If the area remains stagnant and no major development occurs, it is worth what it's trading at or less, perhaps even the $8 figures cited by those who disagree with the long bet.

 

[bargainman]

    As I've said. I think many people stuck with Berkowitz during the biggest meltdown since the great depression. Certainly not anywhere near as many sold out like Romicks did back then.

 

Sure, but back then his relative performance if I remember correctly, was still quite good, or at least average.  This time other funds are doing well and he's not. That's different from everyone doing horribly and FAIRX doing less horribly or equally horribly.  Plus he's had a lot of press lately (morningstar's manager of the decade etc) so I'm sure there's a lot of 'hot' money that found its way into the fund.  Before that he was still reasonably well known, but no where near as well as he is now.  So those investors who found him understood his style better.  My bet would be most of the money pulling out is made of new investors.  I'm sure there are a few long time investors pulling out because of the St Joe's hoopla, but my guess is that's the minority...

[rjstc]

    As I've said. I think many people stuck with Berkowitz during the biggest meltdown since the great depression. Certainly not anywhere near as many sold out like Romicks did back then.

 

Sure, but back then his relative performance if I remember correctly, was still quite good, or at least average.  This time other funds are doing well and he's not. That's different from everyone doing horribly and FAIRX doing less horribly or equally horribly.  Plus he's had a lot of press lately (morningstar's manager of the decade etc) so I'm sure there's a lot of 'hot' money that found its way into the fund.  Before that he was still reasonably well known, but no where near as well as he is now.  So those investors who found him understood his style better.  My bet would be most of the money pulling out is made of new investors.  I'm sure there are a few long time investors pulling out because of the St Joe's hoopla, but my guess is that's the minority...

 

I agree.