Dear Fellow Shareholders,
Over the last few weeks, all of us at Fairholme have been asked about expected performance. My response is both simple and consistent: We buy when most feel they should sell. This advice may sound counterintuitive, but it has proven most wise when we have invested in ideas that were most out of favor.
At Fairholme, we buy securities perceived to have no future when, after our own thorough analysis, we conclude that underlying assets – even when they cannot produce hoped-for income streams – can be run off for substantially more than purchase price. In other words, we aim to buy bargains to profit and help guard against making a poor investment.
Our strategy requires remarkable patience during volatile periods when we look wrong, but has shown that perseverance will be well rewarded. This may be especially true at year-end, when accountants advise selling to defer or offset taxes. Of course, this perversely creates the best opportunities.
I don't want to belabor the point, but we believe successful investing requires seeing facts and consequences far ahead of the crowd. Warren Buffett (Trades, Portfolio) may yet again be the first to affirm this with his recent purchase of Seritage Growth Properties (SRG, Financial) before this REIT redevelops to obtain market-based rents. And, what is true of Seritage is true of former parent, Sears (SHLD, Financial), which holds more than three times as much low-risk real estate and other assets.
Thank you for your trust and steadfastness. Our forthcoming Annual Report will assay all portfolio securities.
Wishing you and yours many happy returns in the New Year,
Bruce Berkowitz (Trades, Portfolio)
At 11/30, Seritage Growth Properties comprised 1.6%, 4.8%, and 11.9% of the Fairholme Fund (Trades, Portfolio), Fairholme Focused Income Fund, and Fairholme Allocation Fund portfolios, respectively.
At 11/30, Sears Holdings Corp. securities comprised 10.5%, 14.7%, and 16.5% of the Fairholme Fund (Trades, Portfolio), Fairholme Focused Income Fund, and Fairholme Allocation Fund portfolios, respectively.
Mutual fund investing involves risk including the possible loss of principal. Past performance is not a guarantee of future results.
The Funds' investment objectives, risks, charges, and expenses should be considered carefully before investing. The prospectus contains this and other important information about the Funds, and it may be obtained by calling Shareholder Services at 1-866-202-2263 or visiting our website www.fairholmefunds.com. Read it carefully before investing.
Fairholme Distributors, LLC (12/15)
