by David Snowball
In the military realm, “fire and forget” refers to weapons that, once fired, you don’t have to think about. In investing, “fire and forget” is sometimes used to describe different kinds of mistakes, centered around the urge to look away after making a decision once. One of those mistakes is to buy a fund (perhaps with good reason), sell it (perhaps with good reason), and then never reconsider your decision.
Managers of both companies and funds should: error. You can’t avoid it. Can not do that. The best people notice it, learn from it, fix it, and do great work again. Maybe it’s not for nothing that the folks at Goodhaven tag “best of all”. And I think they deserve attention again.
good heaven foundation (GOODX) was founded in April 2011 by Larry Pitkowski and Keith Trauner, former colleagues of iconoclast Bruce Berkowitz. Fairholme Foundation. During their time at Fairholm, they have progressed from research analyst to portfolio manager to CIO to vice president. In 2010 they left Fairholm and launched their own foundation about 12 months later. The fund did well for him for two years, but then had a long period of decline. In its 2017 annual report, executives lamented “frustratingly meager profits.” In each of 2013, 2014, 2015 and 2017, the company outperformed his peers by more than 97%.
The next year, they took a closer look at the mirror and concluded that it had no effect. They concluded that they had ruined their own success and that of their investors through a series of bad decisions.
They changed and decided to do better. These changes rolled out in late 2020, giving birth to what manager Pitkowski called Goodhaven 2.0. The main differences he sums up in five changes.
Good Heaven 1.0 | Good Heaven 2.0 | |
two men | one man | Keith left the team, but he didn’t leave the company. They concluded that their styles didn’t mesh, making the whole look disastrously smaller than the sum of the parts. |
Macro calls on market conditions, interest rate direction, etc. influence portfolio construction | Fundamental Analysis Drives Portfolios | The most obvious difference is the rapid and significant reduction in the fund’s traditional double-digit cash stake. The fund is now fully invested. |
Emphasize special situations. It’s about investing in a lot of quirky and interesting securities. | We only consider “occasional special circumstances” to highlight quality names in our portfolio. | Distressed investing is difficult for the most dedicated specialists, and dabbling in distressed investing has been detrimental to their success. |
Focus on statistical measures of value | Focus on cheap for what you get | By centering the desire for quality rather than the desire for cheapness, the portfolio got a better name and managers sought to reasonably assess future prospects. He was happy to buy growth stocks if the price was right. |
Cut your losses. | “Don’t sell flowers, don’t water weeds” Buy if only the stock price changes | The fund has a low turnover rate of around 17%, reflecting a commitment to hold through price adjustments if the company’s underlying outlook remains unchanged. “Doing nothing is much, much harder than doing something,” Pitkowski admits. |
Goodhaven’s portfolio is characterized by dramatically higher quality stocks with higher growth prospects than peers, according to Morningstar. This coincides with a period of dramatic outperformance in terms of total return, downside management and risk-adjusted return.
Three-year performance comparison (since 2006)
April | maximum drawdown | Lower price deviation | Ulcer index | sharpe ratio | Sortino ratio | martin ratio | |
good heaven | 20.0% | -17.8 | 9.8 | 6.5 | 1.07 | 1.90 | 2.85 |
Multicap Value Peer Group | 12.9 | -17.9 | 10.3 | 5.9 | 0.65 | 1.13 | 2.16 |
S&P500 | 12.9 | -23.9 | 11.4 | 9.8 | 0.65 | 1.01 | 1.18 |
Recent strong performances, including earnings in the first half of 2023, have put the company in the top 10% of profits among Morningstar’s peer group over the past three years.
Conclusion: Goodhaven lives up to its original promise. Funds are beginning to return little by little, although they have declined significantly since their peak. For investors concerned with quality as price, it would be wise to add Goodhaven to their due diligence list.