Larry Pitkowsky and Keith Trauner, Co-Founders, Managing Partners and Co-Portfolio Managers, GoodHaven Capital Management
Larry Pitkowsky: What we’re trying to do is to find a few sensible investments that will allow us to compound our hard-earned money and our shareholders’ hard-earned money without taking a lot of risk. We started the GoodHaven fund a little over two years ago. Since we started the Fund and through the end of May, we were up around 40% while holding a lot of cash. Better than the market and much better than most hedge funds. So far, so good.
Wally Forbes: Holding a fair amount of cash and achieving that kind of a return is good.
Keith Trauner: Yes – it’s not just about return but how much risk you assume to make that return. As a general rule, we think there are two basic approaches to trying to deal with investments and what happens the day after you buy them. One is you can try and predict the future. But we don’t think very many people are good at that and we certainly don’t think we have a crystal ball. Or, two, you can position yourself to react to what happens. That’s one of the reasons why we like having liquidity around when people are generally more positive and there’s not as much fear – recently, people seem to think the world is wonderful, but there are still plenty of reasons to be cautious.
But when you have liquidity and other people don’t, the value of that liquidity multiplies under stress. So we try to follow Buffett’s rule, you know, which is “Be greedy when most are fearful, and fearful when most are greedy.”
Forbes: What is the percentage range of your liquidity when everybody’s negative? Do you build it up when everybody’s happy? Is that what you do?