A Personal Story About Picking Winning Mutual Funds

Just last week, while looking through financial news online, I came across the following article titled Major Investor Unloaded Sears Stock ahead of Bankruptcy Report and it brought back some very real memories. The article reports that this guy BOUGHT sears stock for $61/share and just sold it between 61¢ and 65¢ per share.

Yikes, that’s like a PENNY ON THE DOLLAR…in the wrong direction!

No bueno.

Click here for the full story…

Bruce Berkowitz’s Fairholme Fund was first introduced to me sometime in 2006 or 2007 while watching CNBC. In the segment, they were interviewing some of the very top Mutual Fund Managers. Bruce’s Fairholme Fund was one of them.

I distinctly remember how impressed I was by how well spoken he was as he shared an incredible story about why his fund was so special and the unique way in which he conducted research that gave him an advantage over other investors. This then allowed him to take large concentrated positions in stocks inside his fund.

They referred to him on the show as a young Warren Buffet because of his Value Investing Philosophy.

Long story short, I ended up using his fund in some of my own accounts and for my clients. After all, he had an incredible track record; he was super smart, sophisticated and happened to be a down to earth and likable guy. Who wouldn’t trust him with their hard earned money?

Luckily, I didn’t keep my clients money in the fund for a long time nor did I allocate a large portion of their overall investment to it. The below graph below shows why this was so fortunate.

Fairholme Fund Performace: The fancy blue arrow here points to the circled time frame that I invested in the Fairholme Fund.

Three Important Takeaway Lessons:

  • Ignore the media. In the attached article Bruce looks like a total scoundrel. In the CNBC report I saw he looked like the nicest, most professional guy ever. Media promotes whatever’s HOT. They sell fear and greed online, over the airwaves and print it every day. I’ve made the mistake of falling for it many times before; I’ve got the bumps and bruises to prove it. Be very skeptical.
  • Past performance does not predict future performance. There is absolutely no empirical, scientific, evidence that investing in something that has done well will continue to do well at least over any meaningful, investable time frame.
  • Large bets can bite you. Many times when investors outperform it is because they have taken large bets in securities (as was the case here). Those same large bets can come back to bite you as it did here.

There’s a better way to invest. If you’d like to learn more about it shoot me a quick email and I’ll send you more information or we can sit down and talk it over.

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Live Life On Your Terms

Whether you want to travel more, do things you’ve always wanted to do, or just spend more time with the grandkids, we want to be your guide to help you get there.