"Fund of the Decade"

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
Taylor Larimore
Posts: 32839
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

"Fund of the Decade"

Post by Taylor Larimore »

Hi Bogleheads:

This morning I happened to look at the Miami Herald list of "150 Biggest Mutual Funds" Year-to-Date returns. Only one had a loss--The Fairholme Fund.

In 2010 Morningstar named the Fairholme Fund, Fund of the Decade for its performance from 2000 through 2009. It is now ranked in the bottom 1% of 1,233 Large-Value mutual funds for 1-year return.

Past performance does not guarantee future performance.

Edit in green.
Last edited by Taylor Larimore on Thu Apr 28, 2011 2:50 pm, edited 1 time in total.
"Simplicity is the master key to financial success." -- Jack Bogle
bearcub
Posts: 1118
Joined: Sat Mar 08, 2008 6:54 am
Location: Twilight Zone

Post by bearcub »

,,,,
Last edited by bearcub on Sat Jun 18, 2011 8:48 pm, edited 1 time in total.
User avatar
woof755
Posts: 3263
Joined: Sun Aug 05, 2007 2:03 pm
Location: Honolulu

Post by woof755 »

Especially in the extremes (top 10% of returns one year) it seems like many times past results are inversely related to future performance!
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing
User avatar
nisiprius
Advisory Board
Posts: 52105
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Post by nisiprius »

A company named Adams Media has been publishing a series of books entitled "The 100 Best Stocks You Can Buy [year]" annually since 1996. Early editions by one John Slatter, later by Peter Sander.

It would be a nice project to track how these authors' recommendations have done. A nice project for someone else, of course. Quick Googling didn't turn up any systematic reports, although an Amazon Reader Review for The 100 Best Stocks You Can Buy, 2008, posted in 2009, says "The Worst stocks you could buy. None of these were right. They ALL had negative returns. The one that LOST the least was -2%, the one that lost the MOST was -78%!!!" But, for 2008? Maybe that's not so bad.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
norookie
Posts: 3016
Joined: Tue Jul 07, 2009 1:55 pm

Post by norookie »

:D O'yeah. FA Susan Kaplan, Sunday a.m's "the Money Show" co-host in BOS is still sticking to it as her "1 Fund" to recommend. She caught on to it's stellar performance late too, I recall in late 08. Glad you posted this Taylor.
" Wealth usually leads to excess " Cicero 55 b.c
Howard Donnelly
Posts: 551
Joined: Tue Dec 14, 2010 2:19 pm

Post by Howard Donnelly »

Wow! Great example. Thank you, Taylor.
ScottW
Posts: 165
Joined: Tue Mar 25, 2008 8:13 am

Post by ScottW »

Taylor, your statement is a little misleading. Morningstar currently ranks Fairholme in the bottom 1% of LV funds for <i>over the past four months</i>. At the end of 2010, just a few months ago, it fell within the top 1% of funds for the year.

If Fairholme had an extraordinary run and then crashed and burned over a period of several years, it might be a cautionary tale for performance chasers. Four months? Not so much.
centrifuge41
Posts: 1317
Joined: Mon May 17, 2010 9:04 am

Post by centrifuge41 »

Mr. Larimore,

Thank you for the update and good information. Once again, we are reminded that we should stay the course, diversify, and lower costs. The FAIRX fund's expense ratio is 1.00%, and it is not exactly well-diversified, with over half of its assets held in 8 stocks.

Morningstar chart for Fairholme vs. Vanguard Total Stock Market, from 2000 until now:
Image

Morningstar chart for Fairholme vs. Vanguard Total Stock Market, for 2011 YTD:
Image

With that said, I may be benchmarking to the wrong index. I do apologize in advance - FAIRX changes Morningstar styles often, so I don't know what to compare it to.I did compare FAIRX to to Vanguard's small cap index for the 2000-2011 timeframe, and the results aren't nearly as impressive as when you include the 2000 to 2003 timeframe - most of the gains were already to be had, and those who purchased FAIRX afterwards seemed to have endured much higher risk for very little extra gain:
Image
Last edited by centrifuge41 on Thu Apr 28, 2011 2:44 pm, edited 3 times in total.
fishndoc
Posts: 2327
Joined: Wed Apr 11, 2007 11:50 am

Post by fishndoc »

While I agree that YTD returns are not terribly meaningful, after all the accolades Berkowitz has received over the last few years, I've been sort of expecting him to pull a Bill Miller and have a major crash.
Odds almost always catch up with you.
" Successful investing involves doing just a few things right, and avoiding serious mistakes." - J. Bogle
User avatar
Topic Author
Taylor Larimore
Posts: 32839
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Correction of correction

Post by Taylor Larimore »

Hi Scott:
Taylor, your statement is a little misleading. Morningstar currently ranks Fairholme in the bottom 1% of LV funds for over the past four months.
I edited my post to state 1-year category rank is bottom 1%

Thanks for noticing my oversight.
"Simplicity is the master key to financial success." -- Jack Bogle
matt
Posts: 2305
Joined: Sun Mar 04, 2007 2:47 pm

Post by matt »

FAIRX outperformed the S&P 500 by 10.4% in 2010. So the underperformance is indeed solely from the past 4 months. This should mean nothing to a long-term investor, but of course message boards are filled with investors who are fed up with the "consistently bad" performance. Are the Bogleheads now encouraging more of this bad behavior by getting people to sell the fund during a period of weakness?
User avatar
Topic Author
Taylor Larimore
Posts: 32839
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Post by Taylor Larimore »

matt wrote: Are the Bogleheads now encouraging more of this bad behavior by getting people to sell the fund during a period of weakness?
Hi Matt:

It appears you missed the point:

"Past performance does not guarantee future performance."
"Simplicity is the master key to financial success." -- Jack Bogle
matt
Posts: 2305
Joined: Sun Mar 04, 2007 2:47 pm

Post by matt »

Taylor Larimore wrote:Hi Matt:

It appears you missed the point:

"Past performance does not guarantee future performance."
But why is the measurement period should be so short? I don't think four months of underperformance improves that FAIRX is not going to have a future like its past. If value stocks underperform growth for four months, does everyone give up on the value premium? I don't think so.
Nowizard
Posts: 4827
Joined: Tue Oct 23, 2007 5:33 pm

Top Ten Funds in Terms of Investment Totals:

Post by Nowizard »

USA Today publishes its list of the ten largest mutual funds and YTD returns. Number 1 is a tie between Vanguard Total Stock funds (Investor and Admiral). Dodge and Cox Stock is close behind as number 3.

Tim
jack1719
Posts: 361
Joined: Tue Mar 23, 2010 6:43 pm

Post by jack1719 »

centrifuge41 wrote:Mr. Larimore,

Thank you for the update and good information. Once again, we are reminded that we should stay the course, diversify, and lower costs. The FAIRX fund's expense ratio is 1.00%, and it is not exactly well-diversified, with over half of its assets held in 8 stocks.

Morningstar chart for Fairholme vs. Vanguard Total Stock Market, from 2000 until now:
Image

Morningstar chart for Fairholme vs. Vanguard Total Stock Market, for 2011 YTD:
Image

With that said, I may be benchmarking to the wrong index. I do apologize in advance - FAIRX changes Morningstar styles often, so I don't know what to compare it to.I did compare FAIRX to to Vanguard's small cap index for the 2000-2011 timeframe, and the results aren't nearly as impressive as when you include the 2000 to 2003 timeframe - most of the gains were already to be had, and those who purchased FAIRX afterwards seemed to have endured much higher risk for very little extra gain:
Image
He just blew the "market" away for almost 10 years...that is pretty amazing numbers...

I think he is due one off year...
User avatar
Rob5TCP
Posts: 3811
Joined: Tue Jun 05, 2007 7:34 pm
Location: New York, NY

Post by Rob5TCP »

Yes his performance is remarkable - I wish someone told me ten years ago he would outperform.

My problem is I can only find the geniuses AFTER the fact.
matt
Posts: 2305
Joined: Sun Mar 04, 2007 2:47 pm

Post by matt »

Rob5TCP wrote:Yes his performance is remarkable - I wish someone told me ten years ago he would outperform.

My problem is I can only find the geniuses AFTER the fact.
Looks like Kiplinger's let you in on the secret in June 2007 (http://www.kiplinger.com/magazine/archi ... kip25.html). Despite recent underperformance, had you bought FAIRX at the end of that month, you would have outperformed the S&P 500 and Total Stock Market by a hair over 20% since then. So someone did tell you four years ago and the recommendation was worth almost 5% per year in outperformance. Seems pretty good to me.
User avatar
norookie
Posts: 3016
Joined: Tue Jul 07, 2009 1:55 pm

Post by norookie »

:D Considering his [FAIRX] exposure to Financials ,@ my last reading. As well as the % the financial sector has fallen, if RTM takes place in 5yrs he might in fact beat TSM. He's a "manager" a FA*.......he probably knows a bit more than you or I . That said, I'll stick to indexes and sectors myself. :wink:
" Wealth usually leads to excess " Cicero 55 b.c
avalpert
Posts: 6313
Joined: Sat Mar 22, 2008 4:58 pm

Post by avalpert »

matt wrote:
Rob5TCP wrote:Yes his performance is remarkable - I wish someone told me ten years ago he would outperform.

My problem is I can only find the geniuses AFTER the fact.
Looks like Kiplinger's let you in on the secret in June 2007 (http://www.kiplinger.com/magazine/archi ... kip25.html). Despite recent underperformance, had you bought FAIRX at the end of that month, you would have outperformed the S&P 500 and Total Stock Market by a hair over 20% since then. So someone did tell you four years ago and the recommendation was worth almost 5% per year in outperformance. Seems pretty good to me.
They also let us in on 24 other secrets - did you check how they did? Or did you and your great prescience (though lack of a verified track record to confirm it) told you that this was the one of the bunch o trust?
User avatar
kenyan
Posts: 3015
Joined: Wed Jan 12, 2011 11:16 pm

Post by kenyan »

matt wrote:
Rob5TCP wrote:Yes his performance is remarkable - I wish someone told me ten years ago he would outperform.

My problem is I can only find the geniuses AFTER the fact.
Looks like Kiplinger's let you in on the secret in June 2007 (http://www.kiplinger.com/magazine/archi ... kip25.html). Despite recent underperformance, had you bought FAIRX at the end of that month, you would have outperformed the S&P 500 and Total Stock Market by a hair over 20% since then. So someone did tell you four years ago and the recommendation was worth almost 5% per year in outperformance. Seems pretty good to me.
Unfortunately, Kiplinger's also told me to buy:

LMOPX - underperformed its index by 40+%
MUHLX - underperformed its index by 30+%
BRAIX - underperformed its index by 28%

and several other funds that were beaten by their indices: CGMFX, JETAX, FBRVX, MXXIX, SLASX. Most of the others were pretty neutral with their index or the S&P.

Oops. Didn't check the bond funds, but it kind of looks like a crapshoot to me, not a list of the best funds from June 2007-present.
matt
Posts: 2305
Joined: Sun Mar 04, 2007 2:47 pm

Post by matt »

kenyan wrote:Unfortunately, Kiplinger's also told me to buy:

LMOPX - underperformed its index by 40+%
MUHLX - underperformed its index by 30+%
BRAIX - underperformed its index by 28%

and several other funds that were beaten by their indices: CGMFX, JETAX, FBRVX, MXXIX, SLASX. Most of the others were pretty neutral with their index or the S&P.

Oops. Didn't check the bond funds, but it kind of looks like a crapshoot to me, not a list of the best funds from June 2007-present.
But why would I buy those other funds? I'm only interested in absolute return value managers.
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Post by pkcrafter »

I can assure you that investors who bought fairx during the past year based on it's performance record are not too happy. Fairx has been the focus of many posts on M* and fund owners are dumping it. Should they? Who knows. This is life with a very concentrated fund.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
User avatar
Mel Lindauer
Moderator
Posts: 35757
Joined: Mon Feb 19, 2007 7:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Post by Mel Lindauer »

pkcrafter wrote:I can assure you that investors who bought fairx during the past year based on it's performance record are not too happy. Fairx has been the focus of many posts on M* and fund owners are dumping it. Should they? Who knows. This is life with a very concentrated fund.


Paul
That's the whole point, Paul. Performance-chasing investors pile in after the fund has had a nice run and then dump it at the first sign of trouble.

As we all know, buying high and selling low is a recipe for financial disaster.
Best Regards - Mel | | Semper Fi
billjohnson
Posts: 626
Joined: Thu Nov 04, 2010 10:41 pm

Re: "Fund of the Decade"

Post by billjohnson »

Taylor Larimore wrote:In 2010 Morningstar named the Fairholme Fund, Fund of the Decade for its performance from 2000 through 2009. It is now ranked in the bottom 1% of 1,233 Large-Value mutual funds for 1-year return.
Not sure how/why a die-hard indexer would even entertain such shortsighted thoughts?
Call_Me_Op
Posts: 9872
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Post by Call_Me_Op »

Another fund that did extremely well over the past decade (comparable to Fairholme) is the Permanent Portfolio Fund (PRPFX). That fund continues to kick butt.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
cheapskate
Posts: 926
Joined: Thu Apr 26, 2007 1:05 pm

Post by cheapskate »

Hi Taylor

I think Fairholme illustrates a problem with active management well. With active management one can choose between a focused fund (Fairholme, CGM Focus, Oakmark Select, and in the 90's Janus Twenty) or a much more diversified one.

Focus funds can often deliver jaw dropping performance - for a few years. Inevitably a few of their picks will blow up, with massive negative impact. Example - Nygren (Oakmark) and Washington Mutual. Nygren loaded up on WAMU, believing it to be a good value. He kept defending it all the way to nearly 0. This (and other duds) hurt Oakmark badly. Betting that Fairholme will not meet the fate of their brethren is not a sound wager. I, for one, want to see how loading up on St Joe's plays out for Fairholme over the long term.

The other choice of broad diversification with active stock picking results in the fund being a closet index, where the expenses (ER, trading costs, tax impact etc) serve as a big drag on returns.
User avatar
Robert T
Posts: 2803
Joined: Tue Feb 27, 2007 8:40 pm
Location: 1, 0.2, 0.4, 0.5
Contact:

Post by Robert T »

.
Following this thread I decided to check in on the portfolios set up as part of the Who’s the fairest of them all thread, which included the Fairholme fund. Since then I have also added to the asset allocation set: RAFI and Greenblatt portfolios; the security selection set: IVA Worldwide, and a portfolio of well respected active managers at the time (PRIMECAP, Yacktman, IVA, Dodge & Cox, Matthews, Fairholme, Harbor [Gross], Vanguard [Shroders]), and to the market timing set: a momentum portfolio of AQR funds (Asness). Here is the full set of portfolios FWIW: portfolios. Will continue to track these over time - out of interest. According to M*, here’s the recent performance (not adjusted for taxes). Time will tell.
  • Image
Post Reply