Bruce Berkowitz (Trades, Portfolio) doesn’t worry about going against the flow — at least not in the short term. He is a concentrated value investor who bets on only a handful of stocks, so it comes with the territory.
“With the type of value investing I do, you look very wrong until you’re right,” asserts Berkowitz, founder and chief investment officer of Fairholme Capital Management in Miami. He emphasizes that his investing success stems from the very low price he is willing to pay for a given security. That gives him the greatest chance of making money in the long run, but it also means he’s often buying in the middle of a financial maelstrom (get more on Berkowitz’s value approach in “3 Steps to Successful Investing”).
In 2013 the $8.8 billion Fairholme Fund (Trades, Portfolio) benefited from investments Berkowitz made back in 2011, including in Bank of America Corp. and American International Group. At the time, many investors had been badly burned by those stocks in the financial crisis — “These companies were almost destroyed,” he says — and worries about a double-dip recession were still keeping most potential buyers at bay.
Berkowitz’s willingness to go against the herd paid off handsomely last year as financial stocks rallied strongly. Shareholders in the Fairholme Fund (Trades, Portfolio) enjoyed a return of 35.54 percent in 2013, exceeding the 32.39 percent return of the Standard & Poor’s 500 stock index. That performance helped Berkowitz win the top honor last month as Institutional Investor’s 2014 Money Manager of the Year. Since the fund’s inception in 1999 to year-end 2013, the fund has returned a cumulative 450.94 percent, versus 64.68 percent for the S&P 500.
“In 2013 our success was all about residential real estate,” says Berkowitz, 55. “But it’s exactly why we did well in 2012 and why we did horribly in 2011.”
Berkowitz, who moved to Miami from New Jersey in 2006 to get away from the constant and distracting market talk of the New York financial world, is a big believer that investing goes far beyond a good instinct for numbers. “You have to have a liberal arts education and a sense of history and biology,” he says.
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