Bruce Berkowitz: Why Investors Fail or Don't

Big Fairx Bruce Berkowitz

Above is a chart of  Bruce Berkowitz and Fairholme’s performance which reminds me of Horace–Ars Poetica, “Many shall be restored that now are fallen and many Shall fall that now are in honor.”

I posted on Fairholme back in Dec. 2011:

A defender of Bruce Berkowitz said, “Back to Bruce (Berkowitz of Fairholme), IMO it is right around the corner maybe 6 months or a year when everyone will be jumping on the financial band wagon and it is going to be fun to watch, I go to bed thinking what is going to happen to BAC once they are allowed to raise the dividend, and buyback shares and I come to the conclusion it is going to be fairx

Sure enough, the gloom lifted and now, two years later, Fairholme and Bruce Berkowitz are back in clover.  But in Dec. 2011 you had investors like this one:

purge_dc • Nov 29, 2011 10:14 PM 

Is Bruce Berkowitz trying to lose it all?

Has Bruce Berkowitz become delusional?  Does he think he is running an inverse fund?
or is he just stupid?

The Fairholme Fund is a case study in why investors under perform indexes and mutual funds.  Whether you disliked Berkowitz’s bet on financials, he stuck with his strategy through tough times.   The commentator above publicly pronounced what many of Berkowitz’s retail investors were feeling/thinking at the time. Many sold as redemptions rose rather than adding to their investments.

Today (August 2. 2013) I would bet that many investors in Tocqueville Gold Fund (MUTF:TGLDX), Market Vectors Gold Miners ETF (NYSE:GDX), and Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) who sold in the past three months will regret their decision in a few years.  Investors tend to sell low and buy high.

Dalbar’s Harvey: Individual Investors Brilliant at Mistiming Markets By: Dan Weil

Retail investors’ renewed enthusiasm for stocks now that they’re at record highs is something to fear rather than celebrate, says Louis Harvey, president of Dalbar, a research firm in Boston. “This is one of those moments,” he tells The New York Times. “It’s one of those times we warn about year after year.”

A Dalbar study of the last 20 years shows that investors in U.S. stock mutual funds earned an average annualized return of 4.25 percent during that period, while the Standard & Poor 500 (.INX) stock index generated an 8.21 percent return.

But part of it is also that investors “move their money in and out of the market at the wrong times,” Harvey says. “They get excited or they panic, and they hurt themselves.” Individual investors are brilliant at buying high and selling low, just the opposite of successful investment strategy. So if you must jump into stocks now, “make sure that you select a reasonably defensive asset allocation strategy first,” Harvey notes.

“The most important thing, once you have a strategy is to find a way to actually stick with it,” he adds.


Benjamin Graham eloquently expressed similar thoughts

By CSInvesting


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