Author Topic: FAIRX Fumble.... When to get out  (Read 2278 times)

Christaaay

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FAIRX Fumble.... When to get out
« on: April 02, 2017, 02:53:25 AM »
I bought into FAIRX at the height of it's hay days when everyone was singing it's praises and that of the fund manager. I try not to make emotional investing decisions so I've been sitting on it as my portfolio had been pretty standard for two years. I'm heavily loaded on it BERWX and Couple others none of which have been performing any better than my last and largest buys.

I was to go the vanguard route or similar but I can't decide whether and when to pull the trigger and accept the losses. One big factor in the performance is their investment in Fannie and Freddie so if that is resolved positively I would expect to profit but if not I could lose more than the $35k or so I'm down now.

How do you decide when to get out of a fund? Anyone have specific opinions on these?

🔥 is my future so I want to get to building profits again but I don't want to walk away because of a few down years. Appreciate any help!

AdrianC

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Re: FAIRX Fumble.... When to get out
« Reply #1 on: April 02, 2017, 06:39:48 AM »
I'm surprised you have losses in FAIRX. When did you buy?

If you have no confidence in the manager you should bail and never look back. I had a chunk and sold a couple years ago after my Bogle-inspired epiphany. I don't look back.

I do have a similar situation, though. I'm heavy into LLPFX. They had a great 2016, which they crowed about. After a 20% loss in 2015. Grrrr! I should follow my own advice and bail.

MustacheAndaHalf

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Re: FAIRX Fumble.... When to get out
« Reply #2 on: April 02, 2017, 10:09:19 AM »
Each of the funds mentioned have expense ratios in the 0.9% to 1.2% range.  You're not just holding on to bad performance, you're paying for it.  Index fund expense ratios are closer to 0.1%, and can be looked up with "morningstar FAIRX" or even just "FAIRX" for some tickers.

Spork

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Re: FAIRX Fumble.... When to get out
« Reply #3 on: April 02, 2017, 10:24:01 AM »

How do you decide when to get out of a fund? Anyone have specific opinions on these?


If you invested $20k in FUNDX and the value slipped to $10k, the question isn't "at what price should I sell FUNDX?"   The question is "I have $10k.  Should I invest in FUNDX or FUNDY?" 

Always assume you're starting at scratch.  Would you invest in FAIRX now?  If not, dump it and buy "the thing you WOULD invest in".

Christaaay

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Re: FAIRX Fumble.... When to get out
« Reply #4 on: April 02, 2017, 03:10:12 PM »
That's a really good point. I have around $75k in it but it used to be over $100k. I'm holding onto the past value in my head instead of thinking about if I had to buy all over again today would I still buy. That answer would be no but since I'm already in I'm afraid of selling and weeks later having the Fannie/Freddie situation get sorted.

Christaaay

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Re: FAIRX Fumble.... When to get out
« Reply #5 on: April 02, 2017, 03:15:00 PM »
I'm surprised you have losses in FAIRX. When did you buy?

If you have no confidence in the manager you should bail and never look back. I had a chunk and sold a couple years ago after my Bogle-inspired epiphany. I don't look back.

I do have a similar situation, though. I'm heavy into LLPFX. They had a great 2016, which they crowed about. After a 20% loss in 2015. Grrrr! I should follow my own advice and bail.

My biggest buy was in 2010 when it was pretty much at it's high. The fine manager had been a top one but the last few years he's underperforming.

Axecleaver

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Re: FAIRX Fumble.... When to get out
« Reply #6 on: April 02, 2017, 03:32:15 PM »
Here's why you feel that way: https://en.wikipedia.org/wiki/Loss_aversion

Spork's advice is spot on - if you wouldn't buy it today, sell it now and buy what you do want.

ysette9

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Re: FAIRX Fumble.... When to get out
« Reply #7 on: April 02, 2017, 03:54:11 PM »
I find it useful to occasionally go back and read this article to check my own behaviors and make sure I am not making common and easy mistakes with my own investing.

https://www.bogleheads.org/wiki/Behavioral_pitfalls

MustacheAndaHalf

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Re: FAIRX Fumble.... When to get out
« Reply #8 on: April 02, 2017, 07:55:00 PM »
My biggest buy was in 2010 when it was pretty much at it's high. The fine manager had been a top one but the last few years he's underperforming.
When an active manager does really well, they can get an influx of more money than they can invest.  And that glut of cash drags on performance and forces them to consider larger companies when investing.  It's likely you weren't the only one who saw the great prior performance and chased after it.

There's a warning in every prospectus that past performance is no guarantee of future results.  I think you're waiting for future results that nobody can promise.  Random chance can have an active manager beat an index, but in general over the long term an index fund beats the vast majority of active managers.

If you sell, the IRS will share some of that loss.  When you sell and realize the loss, you can offset gains with that loss.  And if there's excess left over you can use $3,000 of the loss to subtract from income followed by carrying the rest over to future tax years (until it's used up offsetting gains and offsetting $3k of income).
« Last Edit: April 04, 2017, 04:43:31 AM by MustacheAndaHalf »

Christaaay

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Re: FAIRX Fumble.... When to get out
« Reply #9 on: April 02, 2017, 08:02:34 PM »
It's an expensive lesson to learn but I suppose the faster I accept it and get on with it the less I'll lose (unless it goes up.... See how I can't let hope go lol).

I plan to move into a vanguard fund. Does it make sense to open an account directly with them to get access to their funds with lower expenses? Any other upsides or downsides?

Thanks for everyone's help and feedback. The articles were especially enlightening as I saw much of my thought processes being sadly described there.

AdrianC

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Re: FAIRX Fumble.... When to get out
« Reply #10 on: April 03, 2017, 08:25:47 AM »
My biggest buy was in 2010 when it was pretty much at it's high. The fine manager had been a top one but the last few years he's underperforming.

2010-2017
VTI CAGR 13.35%
FAIRX CAGR 6.52%

So yes, he's underperforming, but you haven't actually lost money.

He's an interesting guy. He could do fantastic, or he could blow up. I decided it wasn't worth the bother.

EDIT: by the way, don't forget to include the huge distributions from FAIRX when comparing to the market. Yahoo and other charting services don't include the distributions, so funds like FAIRX and Longleaf always look worse than they really are.
« Last Edit: April 03, 2017, 08:28:07 AM by AdrianC »

Christaaay

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Re: FAIRX Fumble.... When to get out
« Reply #11 on: April 04, 2017, 02:08:29 PM »
My biggest buy was in 2010 when it was pretty much at it's high. The fine manager had been a top one but the last few years he's underperforming.

2010-2017
VTI CAGR 13.35%
FAIRX CAGR 6.52%

So yes, he's underperforming, but you haven't actually lost money.

He's an interesting guy. He could do fantastic, or he could blow up. I decided it wasn't worth the bother.

EDIT: by the way, don't forget to include the huge distributions from FAIRX when comparing to the market. Yahoo and other charting services don't include the distributions, so funds like FAIRX and Longleaf always look worse than they really are.

I'm not sure I follow how I haven't lost money. Can you elaborate?

dandarc

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Re: FAIRX Fumble.... When to get out
« Reply #12 on: April 04, 2017, 02:13:53 PM »
My biggest buy was in 2010 when it was pretty much at it's high. The fine manager had been a top one but the last few years he's underperforming.

2010-2017
VTI CAGR 13.35%
FAIRX CAGR 6.52%

So yes, he's underperforming, but you haven't actually lost money.

He's an interesting guy. He could do fantastic, or he could blow up. I decided it wasn't worth the bother.

EDIT: by the way, don't forget to include the huge distributions from FAIRX when comparing to the market. Yahoo and other charting services don't include the distributions, so funds like FAIRX and Longleaf always look worse than they really are.

I'm not sure I follow how I haven't lost money. Can you elaborate?
Since 2010, you're up 6.52% per year if you reinvested your distributions.  Not as much as the broad US stock market (VTI being Vanguard Total Stock ETF), but a positive return.

Christaaay

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Re: FAIRX Fumble.... When to get out
« Reply #13 on: April 04, 2017, 04:41:53 PM »
My biggest buy was in 2010 when it was pretty much at it's high. The fine manager had been a top one but the last few years he's underperforming.

2010-2017
VTI CAGR 13.35%
FAIRX CAGR 6.52%

So yes, he's underperforming, but you haven't actually lost money.

He's an interesting guy. He could do fantastic, or he could blow up. I decided it wasn't worth the bother.

EDIT: by the way, don't forget to include the huge distributions from FAIRX when comparing to the market. Yahoo and other charting services don't include the distributions, so funds like FAIRX and Longleaf always look worse than they really are.

I'm not sure I follow how I haven't lost money. Can you elaborate?
Since 2010, you're up 6.52% per year if you reinvested your distributions.  Not as much as the broad US stock market (VTI being Vanguard Total Stock ETF), but a positive return.

Etrade shows me down 27%. Are the distributions somehow not fully account for?

I started buying in 2009 and made my largest purchase in 2010. I did get almost $20k distribution in 2015 but if I remember correctly the distribution was less than the drop in the stock days earlier. I'm hoping I'm missing something!

AdrianC

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Re: FAIRX Fumble.... When to get out
« Reply #14 on: April 05, 2017, 08:30:59 AM »
Etrade shows me down 27%. Are the distributions somehow not fully account for?

I started buying in 2009 and made my largest purchase in 2010. I did get almost $20k distribution in 2015 but if I remember correctly the distribution was less than the drop in the stock days earlier. I'm hoping I'm missing something!

http://www.fairholmefundsinc.com/Distributions/FAIRXDistributions.pdf

Total distributions 20102016 = $23.96/share
Price in 2010 $30
Price now $19.50

Gain per share = (19.5+23.96) - 30 = $13.46, which is a gain of 45% over the 7 years. Not as good as an S&P500 index fund, but certainly not a loss.

This is assuming a tax-advantaged account. If it's in a taxable account you did worse because you may have had to pay tax on those distributions.

Etrade is showing you the share price change only, not including the distributions.

dandarc

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Re: FAIRX Fumble.... When to get out
« Reply #15 on: April 05, 2017, 08:37:06 AM »
As AdrianC mentioned, you can't just look at the eTrade home screen and say "crap down 27%".  If you're reinvesting distributions, you've got many more shares than you originally bought.  That 2015 distribution was $12.90 per share.  You were then able to reinvest at around $18-19 per share.  You increased your number of shares by about 65-70% from that single distribution if you reinvested.

If you didn't reinvest, then you got a ton of cash - that is part of your investment return.  That first screen in eTrade shows the current price and the average price you paid for all shares.  It is not a proper rate of return computation.  You can be ahead and still see a negative value there.

Incidentally that big drop on Dec 11, 2015 was because of the distribution - they sent out $13 / share, so each share was worth $13 less.  This is what happens when a stock or fund goes ex-dividend.  Then you had some trading of the securities that the fund holds to push it down another $.30 or so.

Christaaay

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Re: FAIRX Fumble.... When to get out
« Reply #16 on: April 05, 2017, 09:06:23 AM »
Wow. Can't believe I've been missing this aspect the whole time. Is there somewhere brokers show the distributions as a part of performance or do I need to dump it in Excel to figure out where I'm really at.

I am in a tax advantaged account and now less convinced to sell. I'm on the camp that believes at some point Fannie and Freddie will get free of the government so if I'm in a better position than I thought in FAIRX I may hang out to see if that belief will pay out.

Thank you all for the help and education. This forum is excellent!

ysette9

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Re: FAIRX Fumble.... When to get out
« Reply #17 on: April 05, 2017, 09:13:15 AM »
Quote
I plan to move into a vanguard fund. Does it make sense to open an account directly with them to get access to their funds with lower expenses? Any other upsides or downsides?

To answer your question from above, I'd say "yes". It is the simplest thing to do. You can buy Vanguard funds through another broker but you could very well pay a fee each time you purchase. If it is one-time thing like you roll over an IRA that you aren't contributing to anymore because you'd pay that fee once, but if you are investing weekly/monthly, you want to avoid unnecessary fees.

Christaaay

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Re: FAIRX Fumble.... When to get out
« Reply #18 on: April 05, 2017, 09:15:41 AM »
Quote
I plan to move into a vanguard fund. Does it make sense to open an account directly with them to get access to their funds with lower expenses? Any other upsides or downsides?

To answer your question from above, I'd say "yes". It is the simplest thing to do. You can buy Vanguard funds through another broker but you could very well pay a fee each time you purchase. If it is one-time thing like you roll over an IRA that you aren't contributing to anymore because you'd pay that fee once, but if you are investing weekly/monthly, you want to avoid unnecessary fees.

Thanks and makes sense. If I plan to sell out of existing finds to get into vanguard funds should I do so before or after moving to vanguard? Not sure it matters.

dandarc

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Re: FAIRX Fumble.... When to get out
« Reply #19 on: April 05, 2017, 09:19:51 AM »
If it were me, I'd probably sell.  If you had been in VTSAX you'd have more than doubled your money since 2010.  This fund, you're like +45%.  45 < 100

This thread makes me think you should take a look at the stock series:
jlcollinsnh.com/stock-series/

Very good primer on stock investing.

dandarc

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Re: FAIRX Fumble.... When to get out
« Reply #20 on: April 05, 2017, 09:22:13 AM »
Quote
I plan to move into a vanguard fund. Does it make sense to open an account directly with them to get access to their funds with lower expenses? Any other upsides or downsides?

To answer your question from above, I'd say "yes". It is the simplest thing to do. You can buy Vanguard funds through another broker but you could very well pay a fee each time you purchase. If it is one-time thing like you roll over an IRA that you aren't contributing to anymore because you'd pay that fee once, but if you are investing weekly/monthly, you want to avoid unnecessary fees.

Thanks and makes sense. If I plan to sell out of existing finds to get into vanguard funds should I do so before or after moving to vanguard? Not sure it matters.
You'll minimize your time out of the market if you do an in-kind transfer to Vanguard, and then sell there.  It can take days to weeks for these transactions to go through, so if you sell first, you could be out of the market longer than you want to be.  First step would be to call Vanguard to discuss the options.

Christaaay

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Re: FAIRX Fumble.... When to get out
« Reply #21 on: April 05, 2017, 09:24:04 AM »
If it were me, I'd probably sell.  If you had been in VTSAX you'd have more than doubled your money since 2010.  This fund, you're like +45%.  45 < 100

This thread makes me think you should take a look at the stock series:
jlcollinsnh.com/stock-series/

Very good primer on stock investing.

Thanks for the link and the advice. It looks like a lot of good information to go through. I thought I had a decent handle on things but I'm realizing I have a long way to go. I'm so glad there's such a helpful community here. Very much appreciated!