BRUCE BERKOWITZ, PRESIDENT OF FAIRHOLME FUND and CEO of Fairholme Capital Management in Miami, runs concentrated portfolios -- and keeps a lot of powder dry to pounce on opportunities as he looks for companies that throw off a lot of free cash. This approach has paid off nicely for the firm, which now oversees about $9 billion, the vast majority of it in the no-load Fairholme Fund (ticker: FAIRX), of which Berkowitz is president. Since its launch at the end of 1999, the fund has finished near the top of its Morningstar category, with an annual "since-inception" return of 16.27%, trouncing the S&P 500's performance of minus 0.03% over the same period. The fund also bests most of its peers based on one-, three- and five-year returns.
Barron's: You run a very concentrated portfolio, with the top 10 holdings of the Fairholme Fund accounting for roughly 70% of the assets. Why is that?
Berkowitz: If you can buy more of your best idea, why put [the money] into your 10th-best idea or your 20th-best idea? If we're confident in what we do, then that's the way we should do it. The only reason not to is a fear of being wrong. The more positions you have, the more average you are.
How do you go about mitigating risk in such a concentrated portfolio?
We consider risk to be the chance of permanent loss, as opposed to volatility. Volatility is more of an opportunity. There's nothing better than a one-time event that allows you to buy a reasonable company at a great price. So we are looking at the chance -- in terms of risk -- of a permanent loss, based upon our own security research.
Tuesday, March 18, 2008
Friday, March 14, 2008
Ever since Brian L. Roberts abandoned a hostile bid for Walt Disney four years ago, Wall Street has wondered when the Comcast chief executive and serial acquirer might make a play for another big media prize. The chatter picked up last fall, just before America's largest cable company confessed that it would add fewer subscribers than expected in the fourth quarter. Some investors worried that, with growth slowing, Roberts might try to pick off Yahoo! or NBC Universal—diversifying away from cable by wading into the murky waters of "content."
In January, dissident shareholder Glenn H. Greenberg warned Roberts to stick to what he knows best: distributing TV, Internet, and phone service over Comcast's 125,000 miles of pipe. As far as Greenberg was concerned, buying a Web site, cable network, wireless outfit, or other "noncore" business would "fritter away" the more than $2 billion in cash that Comcast generates annually. Greenberg, the boss of Chieftain Capital Management, a $5 billion investment fund that owns 2% of Comcast's stock, brazenly questioned whether Roberts should be running the company. The broadside jolted the normally unflappable Roberts into action. In a mid-February conference call with investors, he vowed to reinstate Comcast's dividend after a nine-year hiatus and repurchase $7 billion in stock by 2009, two moves designed to put more of Comcast's money into shareholders' hands. His 88-year-old father and Comcast founder, Ralph, even gave up his hefty compensation package. And Roberts promised that Comcast "was not spending any time on any of the large, transformative acquisitions" that Wall Street had been buzzing about.
Monday, March 10, 2008
Friday’s employment report — which was so weak that it had many economists declaring that we’re already in a recession — was bad news. But it was actually less disturbing than what’s going on in the financial markets.
The scariest thing I’ve read recently is a speech given last week by Tim Geithner, the president of the Federal Reserve Bank of New York. Mr. Geithner came as close as a Fed official can to saying that we’re in the midst of a financial meltdown.
But these are dark times for investors. The Dow Jones has slid over 1,000 points since the first of the year. Icahn has said, "The market is falling off a precipice…the free ride is over, the punch bowl is dry!"
Saturday, March 08, 2008
It's been a rough couple of years for Bill Miller. His $16.5 billion mutual fund, Legg Mason Value Trust, just turned in its worst two-year performance relative to the S&P 500 since 1990, trailing the index by ten percentage points in 2006 and by 12 last year. That would be a poor stretch by any standard, but it's even worse by Miller's own: Until 2006 his value-oriented fund outperformed the index every calendar year for an astounding decade and a half.
With relatively few stocks in the portfolio - fewer than 50 at present - Value Trust has long been one of the most volatile funds in its category. But investors aren't used to seeing Miller lose, and they pulled more than $3 billion out of the fund in 2007, according to Financial Research Corp. Based on its expense ratio of 1.7%, that adds up to a $50 million annual drop in revenues from fees.
What made it unprecedented? Buffett stayed for the entire three hours of Squawk and he also answered questions from people around the world. Those questions were selected from the more than 3000 emails....