Dear Mr. Berko:
I bought 300 shares of Boeing near the bottom of the market in 2009 at $31. I’m undecided between keeping the stock as a long-term investment or selling it and investing the proceeds in a mutual fund called Fairholme. Do you think Boeing is a good long-term 10- or 15-year investment? It is the only profitable commercial aircraft builder in the world, and it seems to be doing well and demand continues to rise. But I keep hearing that China will begin to eat Boeing’s lunch in the near future. If I sell Boeing, what do you think of the Fairholme Funds as a long-term investment?
E.P., San Antonio
Dear E.P.:
Charlie, a neighbor whom I’ve known for several decades, has owned Boeing for 58 years. In l952, he was a nipper in knickers when his dad passed, leaving Charlie 52 shares of Boeing (BA-$64) and a Longines pocket watch. The pocket watch was stolen a few years ago, but Charlie still owns Boeing. So 11 splits and 58 years later, he has 20,000 shares worth more than $1.2 million.
When I asked Charlie why he never sold Boeing, he said, “It was the only thing I have that my father left me.” If you want to keep your BA as long as Charlie, be my guest.
However, I doubt the coming 58 years will be as kind to BA as the last 58 years so I’m inclined to take that 30-point profit to invest the proceeds in the no-load Fairholme Funds.
More than 40 percent of BA’s revenues derive from foreign sales. And I’m also concerned about the impressive competition from the Chinese, who are producing quality passenger and fighter aircraft at much lower prices than BA.
China’s C919 (120 to 200 seats) competes with BA’s 737 and the A320 make by Airbus. And China’s J-10 fighter jets have also become a formidable competitor. BA is no longer the only game in town, and in the coming decade, Chinese planes may be as popular at our airports as Chinese restaurants are in our cities.
I’m also concerned about continued reports of poor quality workmanship and the multiple and significant delays in the delivery of BA’s 787. I’m concerned bout BA’s union-controlled workforce that some industry watchers suggest is assuming some of the bad habits of the auto industry. I’m concerned that BA’s order book will begin to experience cancellations and delays. I’m concerned that today’s buyers may not be able to find financing to complete their intended purchases. And finally, I’m concerned that BA’s huge defense business will experience a significant slowdown as budget cutbacks in the U.S. and around the world will put severe constraints on military purchases. But I won’t be concerned if you sell BA and pay the taxes on your profit and buy Fairholme.
And I think that Fairholme (FAIRX- $34.12) is clearly, far and away a significantly better long-term investment. This no-load, large-cap value fund is one of the 30 or so domestic equity funds (out of 5,000) whose 10-year average annual return (11.81 percent) is in double digits. FAIRX has a five-star ranking, and in the last decade has only had two down years. And in this last bear market (August ‘08 to August ‘09), FAIRX was only down 10.04 percent. That’s impressive by anybody’s standards.
I bought a small position when FAIRX came public in late 2000 because I heard that Bruce Berkowitz (who grew up in the bookie business) was the manager. I still own FAIRX, and I think my small position can do as well in the future as Charlie’s 51 shares of BA did in the past. The bookies are always exceptional investments.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com.
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