A. It has performed better than most large-capitalization growth-and-value funds, but it has taken serious whacks from the market lately.
It buys three-fourths of its portfolio based on the Warren Buffett philosophy of choosing fairly priced stocks to hold long term. The remainder goes to small positions in riskier, beaten-down stocks with turnaround potential.
It often holds a lot of cash, which helps in market downturns.
The $9.3 billion Fairholme Fund (FAIRX) is down 31 percent over the past 12 months, yet ranks in the top 3 percent of its fund category. Its flat three-year annualized return and five-year annualized return of 8 percent rank in the top 1 percent of peers.
"We highly recommend Fairholme Fund for long-term investors, with the caveat that it could get hit hard due to its concentrated nature," said Michael Breen, analyst with Morningstar Inc. in Chicago. "A strength is that (lead) portfolio manager Bruce Berkowitz and his team have a great record of stock picking."
The fund reduced Berkshire Hathaway Inc. Class A holdings this summer, explaining in its semi-annual report that it didn't see how Berkshire could "replicate its past stellar performance given its current size and the age of key personnel." It trimmed energy holdings before oil prices began to slip. It didn't hold troubled insurer American International Group Inc. or investment bank Lehman Brothers Holdings Inc. because it distrusted their exposure to derivatives.
It bought shares of Florida landowner St. Joe Co. because it saw long-term value in its vast undeveloped land. The fund also made Pfizer Inc., Wellpoint Inc. and Sears Holdings Corp. significant portfolio holdings this year.
Nearly one-third of Fairholme Fund is in health care, with another one-fifth in financial services. Energy and media are additional concentrations. Among its recent holdings were Berkshire Hathaway Class A, Pfizer, Canadian Natural Resources Ltd., Dish Network Corp., Sears Holdings, Wellpoint, Leucadia National Corp., Forest Laboratories Inc., Mohawk Industries Inc. and Mylan Inc.
This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment and has a 1 percent annual expense ratio.
Q. What kind of deduction can you take for donating stock to a charity? -- M.I., via the Internet
A. If the stock has increased in value since you bought it, you can avoid paying capital gains tax by donating it.
If the security is being donated to a charitable organization, the total amount will still be eligible for a tax deduction based on the fair market value of the stock.
"There's an advantage to donating stock instead of cash so long as it is a stock you've owned for a year or more and you have a gain," said Mike Busch, certified financial planner with Vogel Financial Advisors in Dallas. "You basically get a tax deduction for the fair market value of the stock, as opposed what you paid for it, and you escape taxation on the gain."
Let's say you bought a stock for $1,000 and it is now worth $2,000. You donate it, get a $2,000 deduction and don't have to recognize the $1,000 gain on your tax return.
"However, if you had a loss, you would want to sell the stock first and donate the proceeds because you want to take the loss on your tax return," Busch said. "You don't want to give up that loss for yourself."