Bruce Berkowitz – From Hero to Zero?

Within less than two years, Bruce Berkowitz, founder of Fairholme Funds, went from being a hero to being a zero in the eyes of fickle investors. On January 12, 2010, Morningstar gave Berkowitz the Fund Manager of the Decade award. Everything was perfect. Everybody was in love with this guy. As investors piled in, his assets under management grew from $10 billion to $20 billion.

Unfortunately in 2011, the love affair ended. He officially “lost his touch.” He was down more than 30 percent, and clients were pulling their money out. It did not matter that he was still up almost 200 percent since his fund’s inception on December 29, 1999, versus 7 percent for the S&P 500. In the money management business, you are only as good as your most recent performance.

This kind of erratic behavior from investors is nothing new. All great money managers have experienced this. They love you when you are up and they hate you when you are down. Berkowitz’s motto is “Ignore the Crowd,” but how can he ignore the crowd when his clients are the crowd? It is very difficult because with the kind of investments that he makes, everyone has some kind of opinion about them. If you ask a cab driver whether he would recommend investing in AIG or Bank of America, you are likely to get some kind of advice. However, if you asked them about Yukon-Nevada Gold Corporation, you would likely get a confused look.

Berkowitz does not have the luxury of investing in small caps because his fund is too big. He has to invest in large companies that are written about extensively in the newspapers and on the Internet. Consequently, his clients read these articles and get scared. They might understand that in order to make great returns, you have to go against the crowd but when it is time to walk the walk, they run away.

I have no doubt that Berkowitz will come back from this slump. He will probably have a very good 2012. Then, investors, like sheep, will flock back to his fund while telling all their friends how great he is. In the end, what counts is not a short-term blip, but the investment process because the right process gets you the right results even if you experience short-term setbacks.

Watch this video. It is very inspirational. This is what investing and life is all about.

8 Comments to Bruce Berkowitz – From Hero to Zero?

  1. February 6, 2012 at 10:31 am | Permalink

    Great article Mariusz.
    Reminds of the adage ‘Buy Low and Sell High’. Unfortunately, for most investors (including many who invested with Berkowitz), they do the opposite ‘Buy Low and Sell High”.
    Regards,
    Jeff

  2. February 6, 2012 at 10:33 am | Permalink

    Oops! Sorry!
    Of course what I meant to say in my prior message for “the opposite” is ‘Buy High and Sell Low’.

  3. JJW's Gravatar JJW
    February 6, 2012 at 4:24 pm | Permalink

    Great day for YNG holders! Hopefully this breaks the string of endless negativity surrounding the stock.

  4. February 6, 2012 at 10:54 pm | Permalink

    He may come roaring back, but it will never be with any of my funds. I saw him at the Value Investing Congress in May 2010. While everyone else comes with a prepared speech and actionable ideas he just came in acting like a rock star and said he would answer some questions. It was a joke and an embarrassment. He needed a good dose of humility.

    It is also a reminder that concentration in a fund can kill you if you are a wrong on the timing. Makes you wonder what Buffett’s record and wealth would have been if he had been running a mutual fund. The cash would came in when he could least use it and left when he was finding the most opportunities.

    • February 7, 2012 at 1:00 am | Permalink

      Tim,

      Very interesting. I have a friend that knows Bruce and I was told that he is not a very nice person to work for.

  5. February 7, 2012 at 12:58 am | Permalink

    I was very happy to see the announcement.

  6. Filipe's Gravatar Filipe
    February 23, 2012 at 4:15 am | Permalink

    Hi Mariusz,

    I am interested on how you manage your Client’s money. Do you have few and concentrated positions or do you have a more diversified portfolio? Also do you actively manage the level of cash you hold (ie. are you always 100% or close do 100% invested or do you use cash as opportunities come along).

    I was also interested to know if you short stocks?

    Don’t know if this is something you are comfortable talking about, and if it isn’t please feel free to let me know

    thank you.

    • February 23, 2012 at 9:41 am | Permalink

      Usually I hold 10 positions but right now I only have 8. As far as cash I am fully invested right now but depending on investment opportunities I might hold more cash. Right now I don’t have any problems finding good investment opportunities.

      I do not short stocks.

  1. By on December 28, 2013 at 12:12 am

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