Fairholme Fund: 2009 Semi-Annual Report
We were able to outperform in the past six months as well as in the trailing one- , three- , and five-year periods because our policy is always to keep adequate cash on hand. Cash is defensive when the market goes into a tailspin. Cash also allows us to be opportunistic in snapping up stocks that get unfairly battered. When panic sets in, as it did many times over the last year, some market participants are forced to sell without regard to price.
Cheap stocks are not necessarily good investments. A cheap stock can become cheaper, as was proven over and over again over the past twelve months. Many once-unassailable blue-chip stocks were brought to their knees. World-class banks and financial companies required government assistance to weather the maelstrom. General Motors went through bankruptcy, which would have been unthinkable a decade ago.
Successful investing is about getting much more cash over time than you give. Buying cheap relative to expected cash flows is half the battle. Today, even though the market is up significantly from the March lows, the investments we own appear undervalued reflecting the market’s hangover from years of irrational exuberance.
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At this time, healthcare and defense remain significant sectors for the Fund. We believe many companies in these sectors are undervalued as they offer essential services and products, have few if any substitutes and have strong cash flows. What’s more, their margins are high enough to assure a steady stream of profits but not so high as to draw in competitors. We believe they are in the sweet spot.
- Links
Peter Bernstein on risk (video) [H/T The Big Picture] (LINK) Related book: Against the Gods: The Remarkable Story of RiskSafal Niveshak: How to Be Happy and Get Rich (some lessons from a re-reading of Poor Charlie’s Almanack) (LINK) Nathaniel...
- Look To The East For Cheap Yield – By Merryn Somerset Webb
This brings me to one of my favourite long-term investments – what many readers insist is my “blind spot” and a market that no one has used the word “bubble” to describe for over two decades. I’m talking about Japan, of course (full disclosure:...
- Hussman Weekly Market Comment: A False Sense Of Security
One of the aspects of the market that is most likely to confuse investors here is the wide range of opinions about valuation, with some analysts arguing that stocks are cheap or fairly valued, and others - including Jeremy Grantham, Albert Edwards, and...
- Bruce Berkowitz Stays In The Sunshine
Bruce Berkowitz must be disappointed that the current Olympic Games program doesn't include professional money management in the competition. If it did, the veteran stock picker's neck would be weighted down with gold right now. -Berkowitz is...
- A Great Time To Go Hunting For Dividends
The market downturn this past week -- indeed, over the past month -- has reignited my interest in buying stocks, and particularly dividend payers. Stocks were in general looking a bit expensive earlier in 2012 and I struggled to find many good opportunities....