That’s the answer Berkowitz gave to Consuelo Mack on WealthTrack near the end of a 30-minute TV interview that aired this weekend. Click here to watch the interview.
Berkowitz spent most of the interview, which he reportedly selected because its longer format allows for a more intelligent discussion compared with the sound bites of CNBC and other financial news stations, defending his stock picks of the country’s “hated” financial companies.
He said those investments—including Goldman Sachs, AIG, Citigroup, Bank of America, CIT Group, Regions Financial and Morgan Stanley—should all help lead the country out of economic recession. He noted that these are the survivors, and that they’re unlikely to fail at this point.
But of all those financial companies, Berkowitz chose MBIA as the one investment he’d recommend (he wasn’t allowed to recommend Fairholme itself).
Because MBIA is actually one of Fairholme’s smaller investments, it may appear that Berkowitz isn’t putting his money where his mouth is. But as he told Mack, The Fairholme Fund is only allowed to own 9.9 percent of MBIA.
Because MBIA's beaten-down market cap is just $1.9 billion, that equates to about a $190 million limit for Fairholme at today’s market prices. That’s not going to make much of a dent in a $16 billion fund—which, as Berkowitz told Mack, is still one-third parked in cash and bonds. Click here to see Fairholme’s portfolio as of June 30.
In defending the pick, Berkowitz said MBIA’s value is higher than the market is giving it credit for even if it never writes another bond insurance policy (We’ve heard him make a similar case for Sears Holdings in regards to the struggling retailer’s valuable commercial real estate and brands). He said MBIA has strong arbitrage possibilities and that it should do well for Fairholme shareholders.
“They’re really taking the right business actions,” he said of MBIA.
Perhaps more than any other investment, MBIA shows that Fairholme has the ability to “ignore the crowd,” as its slogan goes.
Most investors have given up MBIA, which took too many risks during the housing boom, for dead. Hedge fund investor Bill Ackman, with whom Berkowitz appears to see eye-to-eye on other matters (they’re both big investors in General Growth Properties and Citigroup), waged a high-profile public campaign against MBIA that is detailed in Bloomberg reporter Christine Richard’s excellent book “Confidence Game.”
Berkowitz recently spoke with Richard about MBIA in an article you can find here. More recently, Richard filed this article saying that MBIA should be able to make its payments through 2015.
Berkowitz isn’t the only “guru” investor betting on MBIA. George Soros, Irving Kahn and Prem Watsa are all on the same page, as this Guru Focus data show.
But none of them is betting as big as Berkowitz.
Disclosure: I own shares in The Fairholme Fund.