FAIRX to FAAFX?

[cubsfan]

"Everyone seems to be making the assumption that BB will never open the fund back up to new investors. There are other funds that have stopped accepting new money when there is a lack of opportunities and then opened things back up when the circumstances warrant.

 

What is to stop them from doing this?"

 

Nothing at all. He wants capital that understands his strategy. The liquidation of 2011 caused a lot of havoc for the fund.

He couldn't take advantage of the bargains when he had to meet redemptions on investors that came into the fund in 2010.

This will give him a stable capital base for now. Having gone through the last 4 years with BB, I'm happy to see him close both

of these funds to new holders, but leave it open for existing holder additions. It wasn't easy sitting through 2011, now I'm glad

I did - I always have believed in BB - but he certainly tested the faithful during this period.

 

[Guest]

I guess it's always possible that he keeps the funds closed permanently and works on his hedge fund?

 

Or, he could be like Sequoia and keep it closed for about 25 years.

[ERICOPOLY]

the liquidation of 2011 caused a lot of havoc for the fund.

He couldn't take advantage of the bargains when he had to meet redemptions on investors that came into the fund in 2010.

 

 

How so? 

 

The fund went into 100% allocation when the market was bottoming.  Isn't that the same thing he planned on, although from a different path?

 

Pros:

Increased his allocation to his smaller ideas like MBI that otherwise (due to size) don't move the needle much.

Allowed the fund to increase BAC stake well beyond the 5% limit.

 

Cons:

???  Bruce's golf game was cancelled because managing the redemptions was a headache.

 

 

EDIT:  I figure it was an administrative headache for Bruce, but his fund shareholders should have been pleased they could boost their BAC stake near the bottom.  Otherwise not allowed to do that.

 

[cubsfan]

Maybe I worded it poorly. He had to liquidate numerous positions at the worst time to meet redemptions.

BRKb, GS, C, etc, etc - all liquidated - down to 5% cash from 30% cash.

Those we are good investments - but he did keep his favorites.

 

That was real havoc caused by the massive redemptions.

 

 

[ERICOPOLY]

Maybe I worded it poorly. He had to liquidate numerous positions at the worst time to meet redemptions.

 

I guess that hurts the people who are cashed out (the fund sellers), but the rest of the fund shareholders don't get hurt by this provided they don't also sell.

 

However, I can see why it was annoying for Bruce.

 

Take BAC and C for example.  He starts out with 5% in each and he sells out of C 100%.  He keeps his BAC which is now at 10% position.  BAC was discounted more than C at the bottom.  So by ditching C and keeping BAC, the fund benefitted. 

 

Implicitly it was the same as if he'd sold C and bought more BAC with the proceeds.  So on the surface it looks and feels like he was only selling at the bottom, but implicitly he was doubling down on what he didn't sell  8)  So it's a bit of an optical illusion.

 

 

[cubsfan]

"So it's a bit of an optical illusion."

 

I never looked at it that way - so good point. It likely works better for those of us who stayed.

 

I put 8 or 9 people into this fund, 2 bailed, as they couldn't take it.

I kept hearing, no wonder he's down, he owns Sears, look at BAC being sued like

crazy, what's wrong with him, etc, etc. So for them it was a permanent loss.

 

It just so important that people understand the manager they own.

Especially when times get tough.

[bargainman]

Everyone seems to be making the assumption that BB will never open the fund back up to new investors. There are other funds that have stopped accepting new money when there is a lack of opportunities and then opened things back up when the circumstances warrant.

 

I don't think anyone is making this assumption.

 

What is to stop them from doing this?

nothing.

 

But here's the thing.  All we know is he is definitely closing the fund this month.  We do not know whether he will reopen at all, ever.  So we have a 100% known vs a complete unknown.  As such you use what you know you know, and what you know you don't know to make the most rational decision possible.  In this case, if you like BB and are comfortable with the allocation, it's 'open a minimum position so you can invest in the future as you like'.

[valuecfa]

FOCIX gets no love.

 

I added the minimums for each of my family & friend accts i manage, including FOCIX.

 

 

[bargainman]

can someone explain to me what the motivation is to invest in fairholme before its lockup?  they will still disclose their holdings publicly...any investor could copy-cat them on particular holdings...its not as though one would miss out.

 

I can understand the motivation for someone uninformed in finance, or without desire to monitor the portfolio, but for some capable/willing of monitoring/understanding what Fairholme is investing in, why worry about getting in before lockout when copy-cat strategy is always an option?

 

For me personally the original question was whether I should shift to the smaller fund given the deadline.  But I'll echo what another said, which is that I'm happy paying Bruce 1% to manage this money for me.  You could copy cat, but you'd never get it perfectly correct.  Not sure if that matters, you'd probably get a reasonably closely correlated return.  Correct me if I'm wrong but MFs only have to make quarterly filings right?  I'm pretty sure they also have to file right away if they own a significant portion of a company (>5%?) but not otherwise.  So there would be a delay. 

 

Plus there is just the plain psychological friction.  Every decision you need to make and act on takes energy and time, and represents room for error and deviation.  I really wonder if someone has successfully implemented a copycat strategy while maintaining a full life and a job not in finance.  Somehow I doubt it.  I bet the failure rate for people trying copy cat strategies is about as high as the failure rate for startups.  That's why Greenblatt opened up mutual funds for this strategy. Even he found it hard and tedious to run his own mechanical strategy in his kids' accounts.

 

The one additional consideration for me personally is SHLD.  It's too hard for me, and I haven't been happy with the spinoffs and the tax consequences of those spinoffs, so I sold the shares I have.  I'm happy to hand the reins of that investment to BB.

[CorpRaider]

Wish he had reopened FAAFX and FOCIX.  Maybe if the house panics financial markets again and his financials get hammered like in 2011... I wish Berkowitz he had a book or biography.  The healthcare move he made back around the time the ACA was working through would have been a home run looking back on it now, but I suppose he saw the extraordinary opportunity in financials before it was allowed to play out.  Is he prominently featured in any of the value investor compendiums like money masters or tilson's book?  Thanks for the head's up on FOCIX as well ValueCFA, that one would be harder/impossible to replicate without the scale or paying someone 2 and 20.