Because bargains are usually found among securities out of favor, stressed industries attract Fairholme Team like children to a locked cabinet. Accordingly, they have pried open the residential housing industry. While not drawn to most homebuilders, whose business models we find unattractive, we have identified two related businesses that seem overly depressed by current conditions, Mohawk Industries and USG. Both have the talented managers, free cash flows, and strong balance sheets necessary to take advantage of others’ pain. Hopefully, the current residential construction downturn has not seen its nadir. The worse it gets, the better we’ll do down the road.
With Warren Buffett at Berkshire Hathaway, Murray Edwards at Canadian Natural and Ensign, Charlie Ergen at EchoStar, Eddie Lampert at Sears, and other all-star owner managers, the Fairholme Fund has never been blessed with so much talent—and Fairholme team are searching for more. Volatility lets them buy and sell advantageously and underperformance may allow a chance to buy more of what they own.
Read the full shareholder letter.
Sunday, February 11, 2007
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