It's Ok To Not Get It

Yesterday David Yablon tweeted that the Fairholme Fund (FAIRX) managed by Bruce Berkowitz is down on the year versus a modest gain for the S&P 500. Per Google Finance FAIRX is down 7.75% and SPY is up 4.87%. For the last ten years (the default time frame at Morningstar for this fund) $10,000 has grown into $26,366 versus $12,631 for the S&P 500.

That long term result is outstanding and has come from a philosophy of having a small number of holdings, low turnover and a high cash balance. While I don't think it is possible to know how good of a stock picker he really is, the numbers are very impressive and he has not somehow become less of a stock picker in the last six months than he was over the last ten years.

The two holdings that people most associate with him, I think, are AIG and the St. Joe Company (JOE). According to Morningstar, AIG accounts for 7.63% of the portfolio and JOE accounts for 3.06% (I'd have thought JOE would have been larger). As far as these two names go AIG is a more controversial pick broadly speaking and JOE was a controversy of his own making for his dealings with the board.

YTD AIG is down 51% and for the last two years (more relevant time frame) JOE is down 11% versus a 48% lift for SPY. We've probably all heard multiple people making the case for AIG and I've never understood any of them or more correctly never agreed with any of them. A big part of the story for JOE, as Berkowitz was telling it, was a new airport in Panama City, FL would would make the panhandle easier to get to which would make all that acreage that JOE owns in the area go up in value. Is the panhandle an are people are clamoring to get to?

Had AIG and JOE turned out to have been great picks then it would have boiled to my not getting it (kind of like the show Glee, tried twice and couldn't last more than five minutes, people love it and I don't get it) which is OK, no one can understanding everything. If you read a lot about investing and you watch a lot of stock market television then a lot of ideas get thrown at you. Aside from the obvious fact that not all of them can be correct, no one can understand all of them.

This requires some self-awareness and a filter. Self-awareness to recognize your blind spots and to leave certain segments alone, not that you should not try to learn about something new to you but learning is different than committing capital. The filter being that if the primary thesis just doesn't make sense to you that you simply avoid the pick. The new panhandle airport simply was never something I was going to buy into and if that is a major catalyst (I think it was the primary one for Berkowitz) then clearly the idea was not for me.

This also means that you will miss things that do well, even be huge winners. AIG and JOE might turn out to be great but if that happens it will be without me. Again, that is ok, some things will go up without us, that is far better than buying things you know you don't really understand.