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Donald Yacktman’s Wild Ride – Is Berkowitz on the Same Path to Redemption?

March 20, 2012 | About:

Much of the second half of last year I looked at various financial companies as investments. In particular I was interested in piggy-backing on the beaten-down favorites of Bruce Berkowitz which I documented.



At the start of October when the market was getting a bit hairy I pulled the trigger on a financial basket that included AIG (NYSE:AIG), Goldman Sachs (NYSE:GS), Bank of America (BAC), Citigroup (NYSE:C) and Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B). My timing was very lucky as the market roared up in October and just before month end I sold all of these with an average gain of 26%.

Seemed like a good idea at the time, but it now looks like I should have just held on longer term.

These stocks have rebounded nicely, and so too has the Fairholme Fund run by Berkowitz. Is it the start of a great multi-year run for Fairholme? Only time will tell.

What has been shocking is the way the investors in the Fairholme fund have fled after just one bad year of performance. One bad year and investors abandon ship, giving up on a manager with a 20-year track record of outperformance.

This week I came across an article from 2001. The article detailed the Berkowitz-like experience that Donald Yacktman went through when value stocks went out of favor in the late '90s.

Have a look at the shocking decline in Yacktman’s assets under management. All of these people were leaving Yacktman at exactly the wrong time and likely putting this cash into massively overvalued technology stocks:

Don Yacktman, now 59, was once a star. Named portfolio manager of the year by Morningstarin 1991, he was a favorite of no-load investors, independent financial advisers and the press. As manager of Selected American Shares in the 1980s, he honed his acumen for picking growth stocks while they were cheap, tripling shareholders' money in eight years. He started Yacktman fund in 1992 and carried on, generating a respectable 14% annualized gain over the first five years. At his peak in 1997, he had $1.1 billion under management.

And then everything crashed. In the midst of the greatest bull market in history, the Yacktman brand of value investing, which guided its portfolios to a heavy concentration in a few largely unwanted stocks, failed. In 1998 the firm's two funds, Yacktman and Yacktman Focused, gained only 1% and 5%, respectively. In 1999 the funds lost 17% and 22%, trailing Standard & Poor's 500-stock index by a breathtaking 38 and 43 percentage points. Massive redemptions forced distress sales and compounded the damage. Yacktman's assets plunged, to a mere $69 million by September 2000.

If Yacktman hadn't driven into the investing ditch, he could sure see the edge of the road. To add to his misery, he had to wage a proxy fight against his independent directors to stay in control. He won, and new money is finally returning as his kind of investing crawls back toward respectability.

By the middle of December, Yacktman had thumped the S&P 500 for the year 2000, beating it by more than 17 percentage points. He has a long way to go before the damage to the few remaining shareholders and to his standing is repaired. Yet Yacktman, like a cowboy standing by his horse, is neither apologetic nor will he bend to any trends. As he vigorously asserts, "I'm the same Don Yacktman yesterday, today and tomorrow.

This is the exact same situation Berkowitz is in. Years and years of outperformance forgotten after a very short period of underperformance.

Here is the link to the entire article. It is good reading looking back now knowing the end result was vindication for Yacktman:


About the author:


Rating: 5.0/5 (13 votes)


Cowboy77 - 5 years ago    Report SPAM
Berkowitz, however, had other issues that looked suspicious. Namely his cousin-in-law who he hired who basically had little successful experience and possibly a criminal record or something like that. Then he moved him in next door, lost some key guys and subsequently fired his in law. In addition, he took over St. Joes when he should have been picking stocks. Great guy but he looked like he had lost it there for awhile.
Onthefringe - 5 years ago    Report SPAM
Cowboy77: Where did you see or hear of that? I'm don't really follow Berkowitz. But that sounds like a lot of hearsay.
Cowboy77 - 5 years ago    Report SPAM
No, it's not. His cousin in law evidently had many suspicious dealings with lawmakers. I think the guy had married Berkowitz's cousin and then befriended Berkowitz. 2 of his main guys left and started the GOODX fund I believe and there was a big dispute over money they felt that Berkowitz owed them.

I don't remember where I read all this but I'm sure you'll find it if you do a Google search. It was an enlightening article that explained a lot.
Cowboy77 - 5 years ago    Report SPAM
Here's a link to an article I read.

Onthefringe - 5 years ago    Report SPAM
Oh, wow.
Ramands123 - 5 years ago    Report SPAM
There not many times when Warren Buffet has bought huge stake in a stock when someone else did.

That Guy is Bruce Ber. In 1990's it was Wells Fargo and in 2011 it was Bank of America.

He is a very smart guy with incredible track record. He admits he bought little bit early but so did Warren Buffet and Charlie Munger on numerous occasions.

The investors who have stayed with Bruce are going enjoy outsanding gains.

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