Ignore the crowd.

FAIRHOLME
Ignore the crowd.
CONFIDENTIAL ‐‐ NOT INTENDED FOR DISTRIBUTION
Fairholme
Ignore the crowd.
This presentation uses Bank of America as a case study to illustrate Fairholme Capital Management’s investment strategy for the
Fairholme Fund. In the pages that follow, we show Fairholme Fund shareholders why we “ignore the crowd” with regard to Bank of
America and other financial companies that currently are out of favor with the market.
However, nothing in this presentation should be taken as a recommendation to anyone to buy, hold or sell Bank of America securities
or any other investment mentioned herein. Our opinion of Bank of America’s prospects should not be considered a guarantee of
future events. Investors are reminded that there can be no assurance that past performance will continue, and that a mutual
fund’s current and future portfolio holdings always are subject to risk. As with all mutual funds, investing in the Fairholme Fund
involves risk including loss of principal.
The Fairholme Fund’s holdings and sector weightings are subject to change. As of August 31, 2011, Bank of America securities
comprised 6.1% of the Fairholme Fund’s total net assets. The Fairholme Fund’s portfolio holdings are generally disclosed as required
by law or regulation on a quarterly basis through reports to shareholders or filings with the SEC within 60 days after quarter end. A
complete list of the Fairholme Fund’s top ten holdings is available on our website at www.fairholmefunds.com.
The Fairholme Fund is non‐diversified, which means that it invests in a smaller number of securities when compared to more
diversified funds. Therefore, the Fund is exposed to greater individual security volatility than diversified funds. The Fairholme Fund can
invest in foreign securities which may involve greater volatility and political, economic and currency risks and differences in accounting
methods. The Fund may also invest in “special situations” to achieve its objectives. These strategies may involve greater risks than
other fund strategies. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for
longer‐term debt securities. Lower‐rated and non‐rated securities present greater loss to principal than higher‐rated securities.
The Fairholme Fund’s investment objectives, risks, charges, and expenses should be considered carefully before investing. The
prospectus contains this and other important information about the Fairholme Fund, and may be obtained by calling shareholder
services at 866‐202‐2263 or visiting our website at www.fairholmefunds.com. Read it carefully before investing.
Additional supplementary information can be found at the end of the presentation.
Fairholme
Ignore the crowd.
The Fairholme Fund (FAIRX):
Average Annual Total Returns as of 9/30/2011:
1 Year 5 Year Fairholme Fund ‐22.20% 0.12% S&P 500 1.14% ‐1.18% 30‐Day SEC Yield Expense Ratio 10 Year
7.15%
2.82%
‐0.52%
1.01% *
*Includes acquired fund fees of .01%. Acquired fund fees and expenses are those expenses incurred indirectly by the Fairholme Fund as a result of investments in securities issued by one or more investment companies.
Cumulative Returns as of 9/30/2011:
1 Year Fairholme Fund ‐22.20% S&P 500 1.14% 5 Year 0.61% ‐5.76% 10 Year
99.57%
32.00%
Performance information quoted above represents past performance and does not guarantee future results. The investment return and
principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Current performance may be higher or lower than the performance quoted herein. The Fairholme Fund imposes a 2.00% redemption fee on
shares held less than 60 days. Performance data does not reflect the redemption fee. If reflected, total returns would be reduced. Fairholme
performance numbers assume reinvestment of dividends and capital gains and include all expenses, including acquired fund fees and expenses
incurred indirectly by the Fairholme Fund in securities issued by investment companies. While the Fairholme Fund has no front or back loads, or
12b‐1 fees, management fees and other expenses still apply. Current month end performance may be obtained by calling Shareholder Services
at 866‐202‐2263.
Fairholme
Ignore the crowd.
Guiding Principles
Shareholders First Don’t Lose
Focus on Value
Long‐Term Performance
Ignore The Crowd
Fairholme
Ignore the crowd.
Performance of a $10,000 Investment
$50,000
Our performance since inception has been quite good…
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$‐
FAIRX
S&P 500
* Based on total return. See last page for supplementary information
Fairholme
Ignore the crowd.
…And, we’ve even kept pace with our heroes.
Performance of a $10,000 Investment
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$‐
FAIRX
Leucadia
Berkshire Hathaway
S&P 500
* Based on total return. See last page for supplementary information
Fairholme
Ignore the crowd.
Value investing is a long‐term strategy…even Charlie Munger’s private partnership (pre‐Berkshire Hathaway) had tough investment periods.
$180,000
Performance of a $10,000 Investment
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$‐
‐
1962
1963
1964
1965
1966
Munger Partnership
1967
1968
1969
1970
1971
1972
1973
1974
1975
Dow Jones Industrial Average
* See last page for supplementary information
Fairholme
Ignore the crowd.
Greedy when others are fearful, and fearful when others are greedy.
25%
1,350
1,300
20%
15%
1,200
1,150
10%
S&P 500 Index
FAIRX Cash %
1,250
1,100
5%
When investors are fearful
prices are low, and we buy.
When prices are high and
others are greedy, we
raise cash.
1,000
0%
FAIRX Cash %
Fairholme
1,050
S&P 500
Ignore the crowd.
Value investors do not equate “volatility”
with “risk” over the long‐term.
Vol•a•til•i•ty: [vol‐uh‐til‐i‐tee]
Webster’s Dictionary “Tending to fluctuate sharply and regularly.”
Barron’s Dictionary of Finance and Investment Terms
“Characteristic of a security, commodity, or market to rise or fall sharply in price within a short‐term period.”
Fairholme
Ignore the crowd.
Market price volatility only measures
short‐term perception of long‐term risk.
FAIRX Recovery Periods
$40
Recovery Period
Recovery Period
8/29/03: $16.52
Span: 16 Months
4/30/10: $35.20
Span: 30 Months
Recovery Period
12/31/10: $35.38
Span: 8 Months
$35
FAIRX Net Asset Value (NAV)
$30
‐13.92%
$25
$20
‐50.26%
$15
‐15.12%
$10
Peak To Trough
4/30/02: $16.40
2/28/03: $13.92
Span: 10 Months
Peak To Trough
Peak To Trough
10/31/07: $34.82
2/27/09: $17.32
Span: 16 Months
4/30/10: $35.20
6/30/10: $30.30
Span: 2 Months
$5
FAIRX NAV
Fairholme
Ignore the crowd.
Investment Thesis for Financial Stocks
1% Return on 10% Return on 20% implied annual
Assets
Owner’s Equity
Return on Investment
This would be a reasonable return to profitability, and certainly not a difficult goal.
Fairholme
This is simply the math associated with the leverage of financial companies.
This is the implied
annual return when you can buy stock at ½ book value.
Ignore the crowd.
Case Study: Bank of America
Fairholme
Ignore the crowd.
Fairholme
Ignore the crowd.
Investing in our Circle of Competence
 Businesses we understand  Favorable long‐term prospects
 Operated by honest and competent people
 Available at attractive prices
$90
$80
Dollars Per Share
$70
$60
$50
$40
$30
$20
$10
$0
2000
2001
2002
2003
Book Value
Fairholme
2004
2005
Market Price
2006
2007
Cash
2008
2009
2010
2011
Revenue
Ignore the crowd.
Bank of America’s Franchise
5,700 Branches, 17,500 ATMs, and 16,500 Financial Advisors in 50 states and over 40 countries. Touches 80% of the U.S. population, including 57 million consumer and small business relationships. Acquisitions and Asset Growth
Dollars (in millions)
$2,500,000
$2,000,000
$1,500,000









North Carolina National Bank
Bankers Trust
First Republic Bank
C&S Sovran Nations Bank
MNC Financial
Barnett Bank
Boatmen’s Bank
Bank America Corp






$1,000,000
$500,000
Fleet Boston
MBNA
U.S. Trust
Lasalle Bank
Countrywide
Merrill Lynch
$0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Total Assets
Fairholme
Ignore the crowd.
“You’ve got to admit it’s getting better...
A little better all the time.”
$600,000
$12,000
$500,000
$10,000
$400,000
$8,000
$300,000
$6,000
$200,000
$4,000
Long‐Term Debt Decline
 22% decline since Q1 2010
$100,000
$2,000
Charge‐Offs
 53% decline since Q1 2010  Q‐o‐Q decrease since 2010
$0
$0
Long‐Term Debt
$1,060,000
$1,040,000
$1,020,000
Charge‐offs
18%
Deposits
 7% increase since Q1 2010
 Reflects strong customer base
Capital
 Sufficient Tier 1 Capital
16%
14%
12%
$1,000,000
10%
$980,000
8%
$960,000
6%
$940,000
4%
$920,000
Deposits
Dollars (in millions)
Fairholme
Tier 1 Common Equity Ratio
Tier 1 Risk‐Based Capital Ratio
Total Risk‐Based Capital Ratio
* See last page for supplementary information
Ignore the crowd.
Legacy Countrywide Loans…
Global Wealth & Global Banking & Investment Management
Legacy Consumer Real Estate Services
Markets
Fairholme
Ignore the crowd.
…Masks Strong Franchises.
Deposits
Card Services
Global Commercial Banking
Global Wealth & Global Banking & Consumer Real Estate Services
Investment Management
Markets
Legacy Asset Servicing
Consumer Real Estate Services
Fairholme
Ignore the crowd.
Get vs. Give
Future Cash Flows
Market Cap: $70bn
Owners Capital: $200bn
Reserves: $50bn
Fairholme
Using Ben Graham’s framework, recently the market has been a “voting machine,” but when it returns to a “weighing machine” Bank of America’s strong fundamentals will come into play.
Ignore the crowd.
Déjà vu?
“…Its earnings power has been disguised by the
intense provisioning for loan losses. But when the
provisioning gets back to a normal level, you’ll start
to see that incredible earnings power come down to
the bottom line. And it’s as simple as that.”
Bruce R. Berkowitz Outstanding Investor Digest November 25, 1992
Fairholme
Ignore the crowd.
Wise investors do not permit “Mr. Market’s” daily fluctuations to affect their understanding of fundamental value.
1,800%
1,600%
Cumulative Return
1,400%
1,200%
1,000%
800%
600%
400%
200%
Started to Buy
Wells Fargo
%
Wells Fargo
S&P 500
Banks have been here before.
Fairholme
Ignore the crowd.
The S&P 500 Index is a broad based measurement of changes in the stock market, is used for comparative purposes only, and is not meant to be indicative of
the Fund’s performance, asset composition or volatility. Given the wide scope of securities held by S&P 500, it should be inherently less volatile. Our results
may differ markedly from those of the S&P 500 in either up or down market trends. The performance of the S&P 500 is shown with all dividends reinvested
into the index and does not reflect any reduction in performance for the effects of transaction costs or management fees. Investors cannot invest directly in
an index.
The performance quoted for Berkshire Hathaway (“Berkshire”) and Leucadia National Corporation (“Leucadia”) is based on the closing market price of
Berkshire’s Class A Common Stock and Leucadia’s common shares. Berkshire is a conglomerate holding company owning subsidiaries that engage in a number
of diverse business activities including property and casualty insurance and reinsurance, freight rail transportation, utilities and energy, finance,
manufacturing, services and retailing. Leucadia is a diversified holding company engaged in a variety of businesses, including manufacturing, land based
contract oil and gas drilling, gaming entertainment, real estate activities, medical product development and winery operations. Berkshire and Leucadia are
not mutual funds. They are subject to different corporate, securities, and tax regulations that affected their return in ways different than a mutual fund.
Berkshire has not paid a dividend. Its earnings are retained and taxed at prevailing corporate income tax rates. The quoted returns for Berkshire and Leucadia
do not reflect capital gains tax a shareholder would pay upon sale of their stock. As a registered mutual fund, Fairholme Fund's net investment income is
exempt from corporate taxation provided it is paid out as dividends. The Fund's quoted returns do not reflect a shareholder's taxes on dividends or upon
redemption of shares. Berkshire was the Fund’s fourth largest holding as of August 31, 2011, representing 7.9% of the Fund’s total net assets. Leucadia was
not among the Fund’s top ten holdings as of the same date.
The “Munger Partnership” was a private investment partnership run by Charles Munger, who is now Vice‐Chairman of Berkshire Hathaway.
Tier 1 Capital: a regulatory measure of a bank’s financial strength. It is composed of core capital, which is principally common stock and retained earnings.
Tier 1 Common Equity Ratio: the measurement of a bank's core equity capital compared with its total risk‐weighted assets. This is the measure of a bank's
financial strength. The Tier 1 common capital ratio excludes any preferred shares or non‐controlling interests when determining the calculation.
Tier 1 Risk‐Based Capital Ratio: the ratio of Tier 1 capital to its Risk‐weighted assets. Risk‐weighted asset is a bank's assets or off‐balance sheet exposures,
weighted according to risk.
The historical return shown for Wells Fargo is based on Closing Price of its Common Stock. The chart refers to the purchase and sale of Wells Fargo stock by
Fairholme Fund’s portfolio manager while he was portfolio manager for Shearson Lehman Brothers. Wells Fargo securities were not among the Fairholme
Fund’s top ten holdings as of August 31, 2011, and were not held by Fund as of its last shareholder report dated May 31, 2011.
Opinions expressed are those of the author and/or Fairholme Capital Management, L.L.C. and should not be considered a forecast of future events, a
guarantee of future results, nor investment advice.
Shares of the Fairholme Fund are distributed by Fairholme Distributors, Inc.
Fairholme
Ignore the crowd.
FAIRHOLME
Ignore the crowd.
Fairholme
Ignore the crowd.