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TMFDanDzombak (83.49)

Interview with Fairholme's Bruce Berkowitz

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January 12, 2010 – Comments (1) | RELATED TICKERS: BRK-B , SHLD , LUK

Copied this straight from Manual of Ideas. It's a great quote, I wish every fund were run this way.

Robert Huebscher of Advisor Perspectives has published an engaging interview with Bruce Berkowitz, manager of the $11 billion Fairholme Fund and one of the most successful value investors of the past decade. Here is an interesting exchange from the interview:

My last question is an unusual one: Since you are obviously in a very competitive business, why do you do interviews with people like me?

We have no marketing. Our shareholders are wired for wealth creation. They are well-informed by using channels such as yours. Whatever I say here becomes public. It’s a great way to communicate with existing shareholders.

I can make points to you that I would be uncomfortable making to shareholders, because what you do is in the public domain. We don’t talk to that many people. You are an extremely efficient channel for our existing shareholders. It’s not cheap to reach 80,000 readers.

It’s also important for Fairholme to attract the right shareholders. For example, if someone called me up for the five-minute timing digest, we are not going to have a chat. The same would be true with the technical analysis channel.

If I can communicate with our shareholders and with other great potential shareholders, then it is very effective, because there is a natural ebb and flow. People leave us during difficult times. We want to keep in touch with our shareholders and keep a high-quality shareholder base.

This is why we charge a flat 1% fee with no loads and have never used a 12(b)1 fee and actually abolished the ability for us to use such a fee.

Last year, there were outstanding managers who had significant amounts of capital withdrawn, who were unable to execute their strategies. Fairholme did not have significant net outflows. It’s hard for me to remember if we had even a month of net outflows. That is a huge weapon and a big advantage – having the right shareholders who will stick with us while others are running for shelter. Without that we couldn’t execute.

I have to find ways to talk to smart people who can present our concepts to the kinds of people we would like to have as shareholders. That’s why we do it. I’m not giving anything away. I would never talk to you about what I am going to do today, what we plan for the future or what is not in our public reports.

The real service is for our shareholders, to let them know who we are, how we behave, how we maintain our level of integrity, how we perform during difficult times and whether we eat our own cooking. That is what’s important.Now that we’ve finished our tenth year, it’s good that people can look back and see what we had to say every six months and how we behaved during very difficult periods. They can stress test us.

At the end of the day, however, I know talk is cheap. You’ll know in three to five years whether I had anything interesting to say today.

Read the full interview with Bruce Berkowitz.

 

 

Dan Dzombak

1 Comments – Post Your Own

#1) On January 12, 2010 at 3:37 PM, TMFDanDzombak (83.49) wrote:

Other good quotes:

 1) The trick in life is not to die.  The trick in investing is not to lose.  

 2) At some price, a great business becomes a speculation.  

 3) Recognizing that you don’t make macro forecasts, what key macro thinking leaks into your analyses at Fairholme?   

What happens if a small nuclear device goes off in a city? Or what happens under extreme conditions of inflation?  The idea is to think of the worst and hope for the best.  That is why we hold, on average, significant cash.  Cash becomes extremely valuable under extreme adversity.

 

 

Dan Dzombak

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