Tuesday, January 12, 2010

Bruce Berkowitz on the Keys to Success for the Fairholme Fund - Advisor Perspectives Interview

Bruce Berkowitz is the founder and manager of the $11 billion Miami-based Fairholme Fund, which just celebrated its tenth anniversary. Along with Charles Fernandez, he runs the fund’s portfolio management team. Last week, Mr. Berkowitz was named Morningstar’s US stock-fund manager of the year for 2009. In addition, he was named Investment Guru of the Year by GuruFocus. On January 4, Fairholme introduced a new fund, The Fairholme Focused Income Fund.

We spoke with Mr. Berkowitz on January 8.

Congratulations on the honors you have earned recently.

You know what they say: first comes success, then comes death. It’s nice, but there’s nothing like success to breed failure.

Hopefully there is a long gap in between.

As long as we stay focused on that concept and know that was yesterday’s news and move forward, we will be okay. I’ve seen too many really good people who are killed by success; they get too big or become managers of people rather than managers of investments.

I’ve had a lot of fun and continue to enjoy myself. We expand our circle of competence - slowly. We hopefully get better and wiser and don’t make the same mistake twice. After about 30 years I’ve made my fair share of mistakes.

I have a trick I use: I put all of my family’s money into the fund.

I’m using every device I know of to make sure we maintain a level playing field and put ourselves in the shoes of our shareholders. The only way to do that is to become as large a shareholder as possible.


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.


Related previous post: Interview with Bruce Berkowitz