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Bruce Berkowitz Interview with Fairholme Funds - ‘It All Looks Great’

February 08, 2012 | About:
Holly LaFon

Holly LaFon

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Bruce Berkowitz is founder of the Fairholme Fund (FAIRX) and has seen significant redemptions recently after a bad year due to overweighting in financials. In this interview with his fund, he answers investors’ questions and says he remains excited about his portfolio and being able to take advantage of the financial cycle. This year, he believes his contrarian investments will pay off, as they were improving in 2011 but the stock price did not reflect it. Specific stocks he discusses are AIG (AIG), Bank of America (BAC) and MBIA. The video is below:





“A lot of similarities between Sears and Berkshire Hathaway.” The journey is similar between Edward Lampert and Warren Buffett.

How about last year, would you do anything different if you knew what would happen: yes I would slow down selling healthcare companies, and bought a lot slower. Given the business trends for financials are turning positive, this is the kind of portfolio I would take forward for the next few years. These companies are dead center of my circle of confidence. I have seen this before.

Investment thesis with AIG? Government ownership should not be a concern to long term investors. We bought more at cheaper prices. The bottom today, the company has a tangible book value of $45, going to $55. Fixable problems are covered up.


Rating: 4.6/5 (29 votes)

Comments

PHILCIR
PHILCIR - 2 years ago
this guy is on crack!!
AlbertaSunwapta
AlbertaSunwapta - 2 years ago
What books do you see on his bookshelves?
fekafiemd
Fekafiemd premium member - 2 years ago
agree, books on the shelves look interesting
ramands123
Ramands123 - 2 years ago


He has fantastic track record and moreover his resoaning is right. He will come out of this with great performance.

vgm
Vgm - 2 years ago
His analogy with Wells in the early 1990s is looking more and more prescient.

I've long believed he will snap back from the current underperformance and emerge as the ultimate contrarian winner. It's a HBS case study in the making!

Gotta admire his self-belief and courage.
fareastwarriors
Fareastwarriors - 2 years ago


At least he has the conviction to carry on.
mjs148
Mjs148 - 2 years ago
I would rather see books about Warren Buffet on his shelf than that of Jim Cramer -- Stay the course Bruce, Good things happen to those who patiently wait....
tonysf
Tonysf - 2 years ago


From Fairholm, we see the good side of a concentrated portfolio and we also see the dark side. Most mutual fund investors are not sophisticated and will take thier money and run in a big downturn. If the goal of a mutuall fund manager is to serve its general fund investors, I guess FAIRX isn't doing a such a good job by being early and having excessive volatilities.
tonyg34
Tonyg34 - 2 years ago
Re: Books

Did anyone else notice that in the closeups both the interviewer and interviewee have the same Warren Buffett Book prominently displayed next to their heads, "The Story of Warren Buffett: 2008 Cosmic Edition". Do you keep multiple copies of the same book in your office? Or this an intentional prop? If it is a prop, what set designer decided that "Lord Jim" deserves equal footing as "Of Permanent Value" and "Security Analysis"?

Re: Content of Interview

More of the same stump speech for Bruce. I'm a longterm shareholder so I hope he's right (early does not equal wrong). It will be interesting to see if the financials get hot, will his assets under management explode again. $20 Billion plus is a lot of weight to push around for a focused value investor, really limits your options. A victim of his own success in some ways. But the golden calf (Warren Buffett) and others have successfully managed that transition; if he wants to be thought of as being of the same caliber, he'll have to prove he can adapt his style.
AlbertaSunwapta
AlbertaSunwapta - 2 years ago
On all the redemptions and second guessing people do, I like these quotes. I think Berkowitz is a bit like Steve Jobs and Warren Buffett. He thinks for himself and to hell with those customers that want him to offer a product that tracks the indexes.


"At precisely 8:45 a.m. Deming began his lecture with a question. "Is it sufficient to have happy customers?" he asked in his characteristically deep, gravelly voice. "The customer never invented anything. The customer generates nothing. He takes what he gets."

He then went on to explain the disappearance of carburetor manufacturers. Sure, they made better and better products, but now they are gone. Why? "They saw themselves as carburetor makers, not as providers of mixing fuel and air," replied Deming.

Change comes from outside the system, according to Deming. No matter how hard employees work or how few defects they produce, the tide of innovation and change cannot be held back..."

http://deming.org/index.cfm?content=653


"It's really hard to design products by focus groups. A lot of times, people don't know what they want until you show it to them." - Steve Jobs, Business Week, May 25 1998

Deming again:

"Customers never invented anything. All they have comes from the producer. No customer asked for electric light. No customer asked for photography, or for telephones, or for telegraph. And no customer asked for pnematic tires or automobiles.

The customer's expectations are only what any company and its competitors have taught the customer. He's a rapid learner, once he learns to expect something." - W. Edwards Deming, Automobile Magazine, October 1991

Now more Steve Jobs...

“It’s not about pop culture, and it’s not about fooling people, and it’s not about convincing people that they want something they don’t. We figure out what we want. And I think we’re pretty good at having the right discipline to think through whether a lot of other people are going to want it, too. That’s what we get paid to do. So you can’t go out and ask people, you know, what’s the next big [thing.] There’s a great quote by Henry Ford, right? He said, ‘If I’d have asked my customers what they wanted, they would have told me ‘A faster horse.’’’ - Steve Jobs
kengolub
Kengolub - 2 years ago
I find it interesting that he won't reveal his intrinsic value estimates for Sears, but then goes into detail on his values for AIG. I also felt he waffled on the question of key people leaving, particularly Fernandez. This interview didn't do much to reinforce my confidence.

Counting on the value of Sears/Kmart real estate is a dicey proposition. An anchor store is important for a mall, but where do you find an anchor tenant big enough to fill a Sears or Kmart space? In case you don't know, there are plenty of mall owners beating the bushes for such tenants. Anchor stores are white elephants today. No doubt there's solid value in some Sears brand names, and in their service/warranty businesses, Land's End, etc. but I'm leery of Berkowitz putting too much reliance on real estate value that may never be realized.

So I'm hanging in with Fairholme, but only because of its past performance and my own patience, NOT because of this staged interview with softball questions and limp answers.

fareastwarriors
Fareastwarriors - 2 years ago


stay the course
valueinvestor
Valueinvestor premium member - 2 years ago


.
AlbertaSunwapta
AlbertaSunwapta - 2 years ago
Is SHLD approaching a good value again?
StevenB125
StevenB125 - 1 year ago
Bruce Berkowitz was Morningstar's 2009 Domestic Equity Manager of the Year and Manager of the Decade. His overall track record is excellent. Even though last year was a difficult year for Bruce, his long term strategy is solid. He knows financials and is an outstanding contrarian fund manager who will see his investments pay off extremely well for FAIRX investors. Ignoring the crowd will pay off once again. FAIRX is one of many of my key long term retirement funds in my portfolio. A prudent and wise long term investor will buy more FAIRX while the price is low.

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