Truth Serum: Fairholme (FAIRX)
Apply Truth Serum To Fairholme (FAIRX)
We can see FAIRX has been underperforming vs. the S&P 500 Index this past year.
Next, we check the volatility of returns of FAIRX against the benchmark. A reading of 1 means the fund is the same volatility as the benchmark. If a fund is twice as volatile, it should go up (and down) twice as much as the S&P 500 Index. If it is less volatile, then it should go up (and down) a bit less.
We want to find a fund that is LESS volatile *and* MORE profitable. By definition, this is the only way to outperform. Unfortunately, these are extremely rare, another reason to do it yourself by protecting capital, cutting costs, and harnessing volatility.
Over the past year, FAIRX has underperformed the S&P 500 Index. Since May, they have increased volatility to slightly higher than the benchmark.
With an expense ratio of 1.01%, you too can invest alongside with well respected money manager Bruce Berkowitz.
In April Barry Ritholtz fired Bruce Berkowitz and FAIRX for his clients. Barry gave blog readers his 5 criteria of when he fires a money manager. A good read for all to check out.
Our mantra here is, “You are better off doing it yourself because of the inherent conflict of interest over fees and management’s lack of skin in the game.”
The sad truth is that every single professional fund manager KNOWS he will probably NEVER outperform over the long haul. The real battle is over which firm grabs the most AUM (AKA “assets under management”, other people’s money, or OPM) through crafty marketing and the “averaging” of annual performance numbers (to hide the bad years) in order to haul in the fees.
The secret of our success is simple. Be your own hedge fund guy. It’s much easier than you think.