The Wall Street Journal Versus Fairholme

http://www.futureofcapitalism.com/2011/08/the-wall-street-journal-versus-fairholme

Today's Wall Street Journal has an article under the headline "Fund Stars Fallen: Berkowitz and Miller Stumble in Market Malaise" that begins:

Well-known mutual-fund investors Bruce Berkowitz and Bill Miller enjoyed winning streaks that lasted years. But they have been among those whacked in the current downturn.

The $13.4 billion Fairholme Fund lost about 18% in August through Monday, including a nearly 9% drop on Monday. That compares with a 14% decline in that time for similar large-value funds, according to Morningstar Inc. data. The fund likely rebounded some Tuesday....Managed by Mr. Berkowitz, Fairholme won praise for protecting shareholders during the 2008-09 bear market, thanks to a decision to hold a stockpile of cash. At the time, Mr. Berkowitz avoided most financial stocks, arguing it was impossible to understand their businesses. He won further plaudits for snapping up corporate debt on the cheap during the crisis and riding it back to big profits during the rebound.

I love the reference to the fund "likely rebounded some Tuesday." The article is in Wednesday's Wall Street Journal. The reporters and editors can't be bothered to figure out precisely what happened to the fund's value the day before?

What's really grating, though, is the claim that "Fairholme won praise for protecting shareholders during the 2008-09 bear market, thanks to a decision to hold a stockpile of cash."

Here's the kind of "praise" that the Wall Street Journal was lavishing on Fairholme at that time. On January 3, 2009, the newspaper ran on a section front an article under the headline "Mutual Fund Fought Off Bears but Now Is Clawed":

Back in October, it looked as if Bruce Berkowitz had made all the right moves, beating a well-timed retreat from energy stocks and avoiding land mines in the financial sector.

Now, though, some investors are wondering if the lead manager of Fairholme Fund suddenly has lost his touch....

Some Fairholme investors are losing faith. In November, Fairholme experienced its first monthly outflow in more than three years, with investors pulling about $7 million from the fund, according to fund tracker Lipper Inc. In a November conference call with investors, Mr. Berkowitz responded to one shareholder letter after another questioning his recent moves.

"I'm horribly upset about our performance. I do believe it's temporary," Mr. Berkowitz, founder and chief investment officer of Miami-based Fairholme Capital Management LLC, said in an interview.

After outperforming a badly listing market by losing just a few percentage points in each of the first three quarters of 2008, the $6.7 billion mutual fund dropped 24% in the last three months of the year, lagging behind the Standard & Poor's 500-stock index by two percentage points.

If a Journal reader had listened to the 2009 article and sold out of Fairholme, he would have missed out on annual returns of 39.01% in 2009 and 25.47% in 2010, which is something to consider when reading this latest Journal article focusing on Fairholme's returns for less than half of the month of August, or focusing on Monday's returns for an article in Wednesday's paper that doesn't include Tuesday's returns. Whatever one thinks of Mr. Berkowitz, he's a lot more credible than the Journal's coverage of him.

(It's also worth mentioning that back in June, Bloomberg News wrote essentially the same negative story on Mr. Berkowitz and another value-fund manager, Bill Miller, that the Journal ran today.)

Disclosure: I don't own any shares in the Fairholme Fund, though I do own some shares in some companies that the fund reportedly owns.

by Ira Stoll  |  Aug 10, 2011 at 7:04 am Related Topics:  Press receive the latest by email: subscribe to the free futureofcapitalism.com mailing list