MoneyWatch's Bruce Jaffe today bestowed a 2011 "Lump of Coal" award on Bruce Berkowitz of the Fairholme Fund. It's a funny piece, and it's tongue-in-cheek, but this is serious business. Both retail investors and 401(k) programs can wind up putting bad investment options into their portfolios because of the inordinate market influence of ratings from Morningstar and Lipper.
Any investment manager, even the good ones, can have bad spells, sometimes prolonged. However, if their discipline and process are consistent, and they learn from the mistakes, investors may choose to stay the course and not lose their shirts. Ratings ought to talk more about fundamentals than personalities. MarketWatch notes that Fairholme is down about 30% year-to-date, and given the continuing uncertainty about how the fund is managed, perhaps Morningstar should consider taking back their Manager of the Decade award, just as college football programs vacate results for NCAA violations!
Footnote: Another example we cited in our earlier post was Fairholme's curious bet on Bank of America, which is flirting with breaking $5 per share in late trading.
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