In a Bloomberg interview, Berkowitz commented on his down year of 2011 when his fund lost almost two-thirds of its assets, “The lesson learned is that as bad as I expect something to happen, it could be worse. I didn't really fully understand how people overweight the near past. The last two years have been weighted more than the last 200 years. What I saw was a cycle repeating itself. What other people saw was something new that was going to continue to be bad forever. I seem to suffer from premature accumulation.”
With a highly concentrated portfolio, Berkowitz “ignores the crowd,” as the Fairholme Fund motto goes. Packing 60% of his assets into just four holdings: AIG, Sears Holding, Bank of America and General Growth Property options, Berkowitz goes it alone, using upside-down thinking; where others go wide and diversify, he holds a narrowly focused portfolio. AIG is about 42.30% of his portfolio heavily weighted towards the financial services sector with 68.5%.
By summer of 2012, Berkowitz’s long-term bets had begun to recover. Last month Forbes announced that his fund had “more than doubled the market and returned 35.8%.” In his most recent letter (January 2013) to the shareholders and directors of The Fairholme Allocation Fund (FAAFX), Berkowitz wrote, “The Fund remains focused on small quantity ideas, including warrants on common stock of companies affected by residential real estate markets. 2013 will be the Fund's third year of operation and the economy's fourth year of recovery. It should allow the time for portfolio security prices to further rise with current home price gains across the country.”
Here’s a closer look at Berkowitz on AIG and BAC.
American International Group Inc. (AIG)
Once a leading multinational insurance company until its near-collapse in 2008, the name AIG has become synonymous with “bailout.” AIG continues to sell assets to cover its government loans and recover from its liquidity crisis.
At Columbia University recently, Berkowitz commented on AIG (42.30% of his portfolio), “The best way to hide a problem in insurance or banking is to grow, grow, grow. It’s an accommodative affect. You can always fib about how profitable a business is for the first few years, especially if it’s a longer-term business. …They’re going to get to a profitable insurance business. AIG is the price leader.”
His holding history of AIG:
Bank of America (BAC)
Berkowitz also commented on Bank of America (11.50% of his portfolio), “The earnings are there. This whole fixing of the Countrywide problem is masking a lot. One day you’re not going to have that negative drain. Bank of America has 40,000 people today working the Countrywide issue. That number is going to drop to zero. So there is a huge, huge earnings power that’s just starting to show now. I think we still have a long way to go.” Bank of America is among the top 10 largest bank companies in the world.
His holding history of Bank of America:
His top buys, top sells, and top holdings:
TV interviews of Bruce Berkowitz are like mind-expanding discourses in philosophy. The “Zenvestor” Berkowitz flies high, speaking to cycles and the meaning of cycles — in the market, in ourselves and moreover, in life. In only a few short years, his fund’s fortune has completely reversed, transforming the Berkowitz image once again — now a faith-keeper for America’s financial sector.
GuruFocus readers voted Bruce Berkowitz, founder and manager of the Fairholme Fund, as GuruFocus’ Guru of the Year for 2012.