Bruce Berkowitz, Portfolio Manager of Fairholme Funds recently published his semi-annual report on July 29, 2009. Here are my notes:
Click here to read the full report.
• In the first half of 2009, Fairholme Funds had total returns of 16.21%, vs. S&P 500's 3.16%.
Fairholme has appreciated about 12.06% a year since its inception. Meanwhile, the S&P 500 lost about 3.06% per year. $10,000 invested in Fairholme at its inception of 1999 would now be worth about $29,507.
• The index fluctuated greatly throughout the first half of 2009. From December 2008 to early March, the market sank 25%. Immediately afterwards, it gained 40%. This fluctuation leaves the market slightly up by June 30, 2009.
• Fairholme was able to outperform the market during the first half of 2009 as well as keeping sufficient cash on hand. Cash gave him the opportunity to pick stocks that have been battered throughout the recession.
• 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.
• It will take quite some time for individuals, companies, and the entire nation to repair the damaged balance sheet. But Berkowitz thinks the economy is “on the mend”. He cited Hertz CEO mark Frissor to support his assessment of the economy.
• Berkowitz thinks many of his investments are still undervalued despite of the recent run-up. Specifically, he thinks Healthcare and Defense industries are the sweet spot. He believes that 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.
Click here to read the full report.
