Transition at Fariholme

I have followed and been enamored by the returns Bruce Berkowitz managed at $FAIRX.  It is well known that he manages a concentrated portfolio of unloved holdings and charges a relatively low management fee. Lately, the performance of the funds has lagged as core holdings such as $AIG were sold off, leaving underperformers like $SHLD and $JOE to become larger portions of the portfolio.

There has been chatter about fiduciary responsibility and how can a portfolio like this be constructed. Bruce has always talked about being wrong for a long time, but you are right. But, these bad boys have been lagging for years. I have been a fan of BB for a long time, but I cannot figure out why invest in $SHLD. I will admit that I never sat down and really dug through $SHLD financials and modeled out a target price. But, c'mon now. To me $SHLD has always been a third-rate retailer. I never go in there and when I do, it is because there was a close parking spot to get into the mall. Funny story, I actually saw a man buy an engagement ring there and propose to his girlfriend. Of course, she said 'yes!' I saw them showing off their ring to an employee at Game Stop.

But, I digress. I do not want to keep banging on BB. In the last Shareholder Letter, BB did say something interesting. With the move to ETFs and lower fee accounts, BB felt it was imperative to adjust the structure of the portfolios. More capital will be heading towards bonds that have equity-like returns. I believe that the success with $CHK had something to do with this. Some of the new holdings are in unloved industries and unloved companies with high levels of debt that are in the midst of restructuring operations. There seems to be a pattern here. I hope this works out as more money is changing stocks and pushing them higher. BB might be ahead of the curve in investing in bonds to gain exposure to out of favor stocks.

Good Luck BB!

#valueinvesting #stockmarket $SHLD $CHK $JOE #Fairholme $FAIRX

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