Value Added


Can the GoodHaven Fund Duplicate Fairholme's Impressive Record?

Steven Goldberg

Two former Fairholme managers have started a new fund with a similar strategy and fewer assets to weigh it down.



Until a couple of years ago, Larry Pitkowsky and Keith Trauner were analysts and then co-managers of Fairholme Fund (symbol FAIRX), which, under lead manager Bruce Berkowitz, has delivered impressive results since its debut in 1999.

In mid April, Pitkowsky, 46, and Trauner, 53, launched GoodHaven Fund (GOODX), hoping to duplicate Fairholme’s accomplishments by investing much the same way. Like Fairholme, GoodHaven is a go-anywhere fund, and it will hold only 15 to 25 stocks. “We’re looking for what we looked for in the old days,” Pitkowsky says. “Good businesses selling at cheap prices.” He and Trauner want businesses run by sharp executives whose interests are aligned with those of shareholders.

Over the past ten years through April 15, Fairholme has returned an annualized 11.4%. That’s an average of 8.3 percentage points per year better than Standard & Poor’s 500-stock index and puts it in the top 1% among large-company value funds.

But Fairholme has struggled over the past year, weighed down by a 68% position in financial stocks. And so far this year, the fund has sunk 4.0%, trailing the S&P 500 by 9.5 points. I find the financial bet worrisome and warned readers about the fund last November (see Fairholme Fund’s Big Bet on Financial Stocks). I also worry about an explosion in the fund’s asset base, which now totals $18.3 billion. (Kiplinger’s Personal Finance recently dropped the fund from the Kiplinger 25, the list of the magazine’s favorite no-load funds.)

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GoodHaven has none of the size issues that Fairholme does. Pitkowsky and Trauner can load up with their favorite small-company stocks. Typically, it’s far easier for good managers to find value among small companies than larger ones, simply because fewer analysts pay attention to small companies than to large firms.

Pitkowsky and Trauner have each invested in excess of $1 million of their own money in GoodHaven. That means they have every incentive to see the fund do well. Both managers spend most of their time reading company reports -- something that too few managers do. Expenses are reasonable, at 1.1% per year. In short, this fund has some good things going for it.

Whenever a team of managers splits up or when some junior colleagues leave the nest, it’s a challenge to figure out who had the stock-picking magic. Sometimes, you can become a great stock picker simply by watching and learning from a great stock picker.

Since Michael Price retired from the Franklin Mutual Series funds in 1998, his protégés have spread like the wind. David Winters launched Wintergreen Fund (WGRNX), which has performed well. David Marcus started Evermore Global Value (EVGBX). Pimco hired two Mutual Series managers to launch Pimco EqS Pathfinder D (PTHDX). I think the old Mutual Series funds are still the best of the lot. They bring more resources to bear in executing Price’s deep value approach to stock selection.

I don’t know how successful GoodHaven will be. Pitkowsky and Trauner are clearly experienced managers who know a lot about investing. Spending all those years working with Berkowitz, I’m sure they picked up a good deal, although Berkowitz has never articulated a clearly defined investment style that could be easily taught, as Price did.

Warren Buffett has compared investing to baseball. Unlike a batter in baseball, though, investors don’t necessarily pay a penalty for keeping the bat on their shoulders. “You don’t have to swing at everything,” Buffett has said. “You can wait for your pitch.”

I’ll watch GoodHaven in its first year. If the fund does well, I’ll reassess. But for now, GoodHaven is one pitch I’ll let go by.

Steven T. Goldberg (bio) is an investment adviser in the Washington, D.C. area.



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