We posted a little from Bruce Berkowitz’s Fairholme Fund, below is some more.
“Traditionally the investor has been the man with patience and the courage of his convictions who would buy when the harried or disheartened speculator was selling.” – Benjamin Graham & David Dodd
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
Investment Company Act file number 811-09607
Fairholme Funds, Inc.
4400 Biscayne Blvd., 9th Floor
Miami, FL 33137
Bruce R. Berkowitz
Item 1. Reports to Stockholders.
The Reports to Shareholders of each Fund are attached herewith.
Mutual fund investing involves risks, including loss of principal. The chart below covers the period from inception of The Fairholme Fund (December 29, 1999) to June 30, 2014. Past performance information quoted below does not guarantee future results. The investment return and principal value of an investment in The Fairholme Fund will fluctuate; an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information quoted below. Performance Figures are after expenses and assume reinvestment of dividends and capital gains but do not reflect a 2.00% redemption fee on shares redeemed within 60 days of purchase. Most recent month-end performance and answers to any questions you may have can be obtained by calling Shareholder Services at 1.866.202.2263. The S&P 500 Index is a broad-based measurement of changes in the stock market, is used for comparative purposes only, and is not meant to be indicative of The Fairholme Fund’s performance, asset composition, or volatility. The Fairholme Fund maintains a focused portfolio of investments in a limited number of issuers and does not seek to diversify its investments. This exposes The Fairholme Fund to the risk of unanticipated industry conditions and risks particular to a single company or the securities of a single company. The Fairholme Fund’s performance may differ markedly from the performance of the S&P 500 Index in either up or down market trends. The performance of the S&P 500 Index is shown with all dividends reinvested and does not reflect any reduction in performance for the effects of transaction costs or management fees. Investors cannot invest directly in an index. The Fairholme Fund’s total expense ratio reflected in its prospectus dated March 28, 2014, was 1.02%.
July 29, 2014
To the Shareholders and the Directors of The Fairholme Fund:
The Fairholme Fund (the “Fund” or “FAIRX” or “Fairholme”) gained 8.72% versus 7.14% for the S&P 500 Index (the “S&P 500”) for the six-month period that ended June 30, 2014. The following table compares the Fund’s unaudited performance (after expenses) with that of the S&P 500, with dividends and distributions reinvested, for various periods ending June 30, 2014.
At June 30, 2014, the value of a $10.00 investment in the Fund at its inception was worth $59.90 (calculated by assuming reinvestment of distributions into additional fund shares) compared to $17.64 for the S&P 500. FAIRX returned six and a half times more than the S&P 500 on a $10.00 investment over fourteen and a half years. Of the $59.90, the share price (net asset value per share) was $42.62 and the value of distributions reinvested was $17.28. This difference, more than anything, demonstrates how the Fund has outperformed the market (as represented by the S&P 500) over the long run.
The potential advantages of our long-term focused investment approach are most evident when evaluating our performance over any 5-year period since the inception of FAIRX. Fairholme has achieved 111 positive 5-year return periods and only 4 negative 5-year return periods, compared with 88 positive 5-year return periods and 27 negative 5-year return periods for the S&P 500. The Fund’s average rolling 5-year return was 72.41% versus 27.26% for the S&P 500. The Fund has outperformed the S&P 500 in 96 of 115 5-year periods, calculated after each month’s end. The Fund’s worst 5-year-period return was (6.89)% versus (29.05)% for the S&P 500. In its best 5-year period, the Fund’s return was 185.26% versus the S&P 500’s best return of 181.57%.
AIG common stock and warrants are nearly one-half the value of the Fund’s portfolio due to appreciation of these securities – even after realizing profits on the sale of millions of shares of AIG common stock.
Fannie Mae and Freddie Mac preferred stocks and common shares constitute approximately 15% of the Fund’s portfolio. We believe that the two companies may be the most important financial institutions in the United States – perhaps the world – and directly support housing affordability and accessibility, including the uniquely American 30-year fixed-rate mortgage. They are a major reason why our country did not enter a second Great Depression, and are proving to be the most successful taxpayer investments of the Great Recession.
Bank of America common stock is the Fund’s third largest position. Acquiring and then fixing Countrywide Financial has cost the bank tens of billions. Finishing the task will, in our view, allow much more to drop to the bank’s bottom line.
Sears remains the Fund’s least successful investment, yet has the highest potential based on our estimates of tangible values.
Tailwinds are building at St. Joe!
Patience will pay.
Onward and upward,
Bruce R. Berkowitz
Fairholme Capital Management
The Fairholme Fund (FAIRX) Semi-Annual Report 2014
The Fairholme Fund (the “Fund”) commenced operations on December 29, 1999. The chart above presents the performance of a $10,000 investment for up to ten years to the latest semi-annual period ended May 31, 2014.
Data for both the S&P 500 Index and the Fund are presented assuming all dividends and distributions have been reinvested and do not reflect any taxes that might have been incurred by a shareholder as a result of the Fund distributions. The S&P 500 Index is a widely recognized, unmanaged index of 500 of the largest companies in the United States as measured by market capitalization and does not reflect any investment management fees or transaction expenses, nor the effects of taxes, fees or other charges.
The Fairholme Fund (the “Fund”) shares outstanding and unaudited net asset value per share (“NAV”) at May 31, 2014, the end of the Fund’s second fiscal quarter of 2014, and per share NAVs at other pertinent dates, were as follows:
For the six months ended May 31, 2014, the Fund was outperformed by the S&P 500 Index (“S&P 500”) by 0.80 percentage points while over the last year the Fund outperformed the S&P 500 by 0.30 percentage points. From inception, the Fund outperformed the S&P 500 by 9.23 percentage points per annum or, on a cumulative basis, 417.72 percentage points over fourteen years and five months.
Fairholme Capital Management, L.L.C. (the “Manager”) believes performance over shorter periods is likely to be less meaningful than performance over longer periods. Investors are cautioned not to rely on short-term results. The fact that securities increase or decline in value does not always indicate that the Manager believes these securities to be more or less attractive — in fact, the Manager believes that some price increases present selling opportunities and some price