This fund manager stopped worrying about the economy. It beats the market.

To get started, take a look at the GoodHaven fund's performance, with dividends and capital gains reinvested, over the five years through 2019, compared to the S&P 500:

In late 2019, Petkowski led a series of changes in how the fund operates, including paying less attention to macroeconomic factors, moving forward more quickly if investments aren't performing well and holding on to successful companies longer, to avoid selling early. He cited Microsoft Corp.MSFT,
+1.56%
As an example of stocks he broke away from too early, he said one example of an industrial and macro-based investment play that didn't go well was a group of energy and materials stocks that got crushed when commodity prices fell from mid-2014 and early 2015. 2016.

“We like to own companies with high return on capital” with good growth trajectories, “before everyone realizes it,” Petkowski said.

“We try to avoid structurally challenged companies that may be statistically cheap,” he added.

Now take a look at the fund's performance against the S&P 500 SPX since the end of 2019:

Narrowing down further to the three-year chart through February 6 sheds more light on the broader stock market's seesaw performance, with an 18.1% decline for the S&P 500 in 2022 followed by a 26.3% return in 2023.

Fund holdings and comments about companies

GoodHaven Capital Management has about $340 million in assets under management, including segregated client accounts and about $230 million in the fund.

As of November 30, the fund's portfolio was 29% in cash and short-term investments, partly due to an influx of new money from investors but also because Petkowski wants to keep money readily available to make purchases at attractive prices and meet investor needs. Any redemption requests from Fund shareholders. At times the level of the Fund's cash and short-term investments has been significantly lower.

Here are the fund's 10 largest stocks as of November 30, making up 52% ​​of its portfolio:

Click on the tickers to learn more about each company, fund or index.

Click here for Tomi Kilgore's detailed guide to much of the information available for free on the MarketWatch rates page.

The table includes forward price-earnings ratios for stocks, based on Tuesday's closing price and consensus EPS estimates for the next 12 months among analysts surveyed by FactSet. For comparison, the S&P 500 trades at a forward-weighted P/E of 20.2.

Two “big wins” cited by Petkowski when discussing the GoodHaven fund's recent outperformance are Builders FirstSource Inc.BLDR,
+0.04%
and Class B shares of Lennar Corp. LEN.B,
+0.64%,
A home builder that trades at a low P/E, along with its entire industry group. We listed the P/E ratios of 17 homebuilders in October, when most were very low. At the time, the S&P Composite 1500 Homebuilding industry subgroup was trading at a forward PE of 7.6. The group is now trading at a forward P/E of 10.2.

Petkowski believes both Builders FirstSource and Lennar have “a lot of growth ahead of them,” and said he's also pleased that both companies have low levels of debt. “The big construction companies have become much better companies,” he said.

Another thing to keep in mind is that Pitkowsky holds Lennar's Class B stock, which trades at a forward PE of 9.6 — a discount to the valuation of the company's Class A LEN stock.
-0.18%,
Which is trading at a forward PE of 10.3.

Lennar's Class B shares have 10 times the voting rights of Class A shares, but they trade at a lower P/E, perhaps because they are less liquid and not included in the S&P 500, Petkowski said. [Lennar]“We have seen super-voting stocks trading at a discount of about 20% to non-super-voting stocks,” he said, adding that the fund benefited as the valuation gap narrowed.

The fund's other big gainer was Bank of America Corp., which Petkowski said was its largest purchase during the 12-month period that ended Nov. 30. Bank of America is now trading at a forward P/E of 10.3, compared to a forward P/E of 10.3. The five-year average is 11.1 and the 10-year average is 11.3.

“[Bank of America’s] “Return on equity is low at 11%+,” he wrote in a November letter to GoodHaven fund shareholders. But he likes the stock's risk/reward potential for several reasons, including “recurring earnings from non-bank companies.”

While lamenting what he now knows was a premature sell-off of Microsoft stock, Pitocchi points to Alphabet Inc. Google,
+2.12%

Google,
+2.04%
As a strong possession he has held onto since 2011.

Alphabet is trading at the lowest P/E level among the 10 largest companies in the S&P 500.

Petkowski said he remains comfortable with Alphabet as a large holding, in part because the company has become “more focused over the last year or two on re-engineering the cost base.” He added that the stock's valuation “doesn't seem demanding” compared to Alphabet's additional growth potential.

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