by Jody Chudley, Daily Reckoning
One of my very favorite investors is Bruce Berkowitz, who manages the Fairholme Fund (FAIRX). I love the way the man invests.
His portfolio is concentrated on his very best ideas, most of which are highly contrarian. At one point after the global financial crisis, he had an incredible 40% of his fund invested in the universally hated AIG (AIG) (which has since doubled)!
I'm not here to sell you on Bruce Berkowitz (although his long-term performance is exceptional) or even invest using his concentrated style. What I do want to do is share with you the mantra with which he manages his fund, because I think it is especially applicable today.
Pasted front and center on the Fairholme website in bold are three words:
IGNORE THE CROWD.
Today, the crowd would have us believe that there is a “glut” of oil and that we have entered a new era of lower oil prices.
I've listened to what the crowd has had to say about oil. The talking heads, the attention-grabbing articles…
“The talking heads, the attention-grabbing articles… [are] heavy on opinion, but very light on data.”
What I've found in virtually every case is that when the crowd delivers its message about the state of the oil market, it is heavy on opinion, but very light on data.
I don't believe that just because the crowd says one thing it necessarily makes it wrong. However, I do believe, strongly, in basing my opinion on cold, hard, objective data, instead of word-of-mouth opinion.
I also believe that if the crowd is in fact wrong in what it believes, taking the opposite side of the trade can be extremely rewarding.
Data Point 1 – Is there currently a glut of oil?
To answer that question, I referred to the Energy Information Agency's November 2014 Short-Term Energy Outlook, specifically the image below:
The blue line shows the number of days of oil supply that are currently sitting in storage for members of the OECD. The yellow line shows the range between the lowest and highest levels of the past five years. The dotted gray vertical line is where we were a few days ago, in November 2014.
