Fairholme Fund is a non-diversified mutual security that strives for long-term capital growth. These securities were founded by Bruce Berkowitz and team in 1997. This involves investing in high potential returns like equity and fixed income securities of public companies with a focused portfolio. However the stocks are purchased only if these companies hold a significant market value or share.
In comparison to other diversified securities, the key strategy employed is to invest in less numbers of securities. This way it enables shareholders to get a better view on other inadequate factors that are likely to influence the portfolio companies. Further these are also invested in particular situations like reorganizations etc. Currently, the securities are also being used to invest in bonds with high yield returns. Since bonds are an added benefit they can be used as a source to get hold of the invested company’s asset.
Factors considered for investments include:
– Each company or owner’s strength and weakness are evaluated. Investments are made with companies or owners who have an exceptional good track of integrity and expertise
– Strong balance sheet and cash flows
– Implementation of conventional accounting system by the company
– Capital returns of the company need to be above average
– Maintain good competitive edge
It is a well-known fact that all investments hold risks with no exception for Fairholme Fund. Few risks include:
– The value of these securities relies on market fluctuations such as interest rates, adverse conditions, etc. As a result the rates could lower down both in the long and short run. More over when selling such shares it is not necessary that the same amount be received when the shares were purchased.
– Investments in less number of securities are a high risk factor as in certain situations few securities could lose market value wherein the investor would be left with no choice.
– Investing in special situations are not feasible and holds greater risk
– Variations in general interest rates could also reduce the security value. Here, investments could decrease in value when interest rates are high and increase when the rates are low.
– These securities also involve credit risks. Such risks mainly depend on the credit quality of a bank and the investor’s capacity to repay debts and interest rates. Incase this is defaulted then the securities could go down in value or get devalued from the market.
Hence in the coming years if these risks are overcome then Fairholme Fund could endeavor to boost the value savings market.