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Bruce B. I hope you've learned this lesson...


bargainman
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When people would ask Bruce B about why he didn't close the fund he said that having the extra cash and liquidity allowed him to do deals he could not have done otherwise. 

 

Years ago near the bottom of the market in 2009 he said on a call how proud he was of FAIRX's shareholders for not doing any redemptions while the market tanked.

 

I hope Bruce B has learned that having cash and liquidity in a fund is a function of the actual cash, *and* the willingness of his shareholders to let him keep that cash in a downturn!  His original early shareholders had that willingness back in 2009, but by keeping the fund open for so long and hence attracting so much hot money he basically opened himself to this position where he was forced to redeem to this new class of shareholder, even though he very recently had close to 20% cash..  I don't know where the asset history is, but if I remember right probably 50% of his fund was new money since the financial crisis.  That meant even a 20% cash buffer wouldn't help much..

 

Let it be a lesson Bruce B.  I hope he learns it.  I mean this in a heartfelt manner, and I am one of the 'older' FAIRX holders.  And for the record I bought more FAIRX today...  Hope this doesn't come off as preachery, I'm just a shareholder making an observation and hoping Bruce considers this next time he asks "how can I kill a company/how can I kill an investment?" -  This time the answer is "by being forced to sell to liquidate to meet redemptions on hot money I attracted...

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This is a business that makes you very humble, very quickly.  It's why Prem keeps a level head and never let's it get too big...or maybe his family and employees remind him since they went through hell with him!  ;D  Plus some shareholders did too!  Cheers!

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That's what I didn't get at the time Parsad.  Bruce always came off as humble and self deprecating.  When he got his manager of the decade award he basically said "yeah thanks, but umm it doesn't mean much".  I just don't understand how he missed this one...  I guess he saw the upside (ie it worked well the last time...) but not the downside.. it won't work well with new shareholders...  Anyway I wish him the best, and I'll probably keep piling in as others pull out...

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That's what I didn't get at the time Parsad.  Bruce always came off as humble and self deprecating.  When he got his manager of the decade award he basically said "yeah thanks, but umm it doesn't mean much".  I just don't understand how he missed this one...  I guess he saw the upside (ie it worked well the last time...) but not the downside.. it won't work well with new shareholders...  Anyway I wish him the best, and I'll probably keep piling in as others pull out...

 

When I say makes you humble, I don't mean it so much in a personality type of way...that Berkowitz's head was getting too big or anything like that.  What I mean is that when you start to get a little too confident, you make a few little mistakes that you normally wouldn't. 

 

- You miss a few things in the analysis.

- You trust your gut too much, and not your head enough...sometimes the other way around too!

- You think that you can always handle something bigger than the last time. 

- You accept that the improbable is exactly that and will probably not happen.  But guess what?  Life is stranger than fiction, and the most improbable event is sometimes a 100% certainty over 20, 30, 40, 50 years.

 

How long did it take for the gold bugs to be right again...30 years?  How long do you think before many of them get too confident and fall on their own sword?  Probably not 30 years! 

 

It's human nature to relish in our own achievements.  It's what makes us challenge ourselves, but it often can bite us in the butt!  Cheers! 

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Parsad how do you always manager to keep such a level head. I am sure most money managers are sitting in cold sweats. This is rough for me, but I am not getting margin calls or worse phone calls.......

 

We were prepared.  We were about 40% cash from February on.  We put about 15% of that to work in the 2nd quarter when financials and tech started to get very choppy.  Now we're fully invested after today.  

 

I know that the stuff we own will do better than any other asset class over the next couple of years, so there is no need to worry.  I've been doing the analysis for the last six months looking for stuff.  Now we just had to buy at the prices we were comfortable with.  

 

I've also learned that there are certain things out of my control...primarily how short or how long a correction can last.  All I can do is be rational, stay liquid until prices are better, put the money to work when the opportunity arrives, and then sit tight.  We are the largest investor in our U.S. fund now, so I am eating my own cooking with all of our partners.  Cheers!  

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He may still end up be right on BAC or other financials.

It's not his fault that ppl pull money out.

 

 

He's definitely right on financials.  I think he's 85% right on BAC.  And yes, it's not his fault that people pull their money, but unfortunately it comes with the territory when you run a mutual fund or a fund with no lockup.  Cheers!

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He may still end up be right on BAC or other financials.

It's not his fault that ppl pull money out.

 

 

He's definitely right on financials.  I think he's 85% right on BAC.  And yes, it's not his fault that people pull their money, but unfortunately it comes with the territory when you run a mutual fund or a fund with no lockup.  Cheers!

 

What do you mean by 85% right Sanjeev?

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What do you mean by 85% right Sanjeev?

 

There's legitimate risk in Bank of America.  Just like there was in Fairfax.  Now is it manageable, and can they do it? 

 

I think Moynihan is a good guy and is trying to clean it up.  They've got robust cash flows and their book of business has improved from three years ago.  They've got assets they can sell to raise capital, rather than go to the public markets.  But is it enough if things get tough, lawsuits multiply and trusts have to be set up to settle these things?  That's the 15%. 

 

Prem's 15% was cured by Cundill, Markel and Southeastern, along with Hamblin-Watsa's investment prowess, the insurance executives working their butts off, and the amazing Dennis Gibbs running off business as if he was doing casual laps at the local YMCA pool.  Does Moynihan have the team?  Does he have the network?  Does he have a bit of luck?  I'm betting that he does, but I did it through the warrants only.  Cheers!

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He may still end up be right on BAC or other financials.

It's not his fault that ppl pull money out.

 

 

I never said anything about him being wrong about his investments!  I suspect that most or all will be right in the long run!  He's certainly convinced me of that.  However I do think it's his fault that ppl pulled money out!  He should have known if he kept the fund open for so long to new investors, that that would happen.  His fund more than doubled in assets.  I found some asset data... He had 7 billion in 2008 and assets grew to about 20 billion or so by 2010.  I'm sure some of it was appreciation but a lot of it was letting in new money..  He should have done a soft close, letting current shareholders put in new money but no new shareholders.  He kept resisting the move over and over, claiming that the fact that he had all his family's money in there would make sure he closed it when it needed to be..

 

I guess he just didn't see this one coming...

 

I always thought that the biggest risk that SHLD faces is that Lampert can't keep control due to redemptions.  Since FAIRX has such big holdings, a big risk is what we just saw.. forced selling of his biggest positions, forced selling that moves the market down..  Kind of dangerous for a financial (an entity that relies on so much confidence...)

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