Friday, February 1, 2008

Fairholme Fund shareholder letter 2007

Bruce Berkowitz and the team at Fairholme Funds have a great track record and have achieved a 17% plus annual compounded return since starting out in 1999. Their shareholder letters are always insightful.

Insurance holding company Berkshire Hathaway (BRKA/B) remains their top position with around 20% of their portfolio. They continued to add to this position during the period ending November 30 2007. Their rationale on why the credit crunch will benefit Berkshire ...

"With a war chest of roughly $40 billion of cash and $100 billion of other liquid investments, Berkshire is a logical senior lender or last-resort acquirer for the financially wounded."(Fairholme annual report 2007)

They also added to their investment in Sears Holdings (SHLD) . Commenting on public and media criticism of Sear's Chairman, Eddie Lampert ....

"Many despair that Sears seems unable to regain past retail glory, despite a conservative balance sheet and many valuable assets. In searching for instant gratification, most are missing key points. As with Warren Buffett in the late 1990s, many believe Eddie Lampert’s investment skills have faded — but it is just as unlikely that this leopard has lost his spots." (Fairholme annual report 2007)

Finally, the Fairholme management have always kept a 20% plus cash balance , they discuss the philosophy and benefits of doing this...

"The unexpected happens more frequently and with more severity than most expect.Accordingly, cash remains a sizeable chunk of the portfolio. As demonstrated this year, cash helped the Fund to weather portfolio headwinds and allowed the Fund to buy without the need to sell already inexpensive securities on the cheap. Shareholders should not fear a temporary decline in the Fund’s NAV, as lower prices for sound investments usually indicate better bargains and higher future returns — particularly with cash hoarded for such chances." (Fairholme annual report 2007)

Here is the link to the Fairholme shareholder letter and annual report. Enjoy...

http://www.fairholmefunds.com/


Disclosure: I own shares in the Fairholme Fund (FAIRX)

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