Fairholme’s Bruce Berkowitz is known for selecting stocks based on adjustment cash flow yield, but if it is so easy, everyone will be doing it. Sometimes he seems to deviate from the tenet and leave people following him scratching their head. The most recent example is his purchase into Citigroup.
GuruFocus data shows that he purchased over 214 million shares of Citigroup Inc.or $700 million worth of common shares in 4Q09.
The Citigroup investment reminds me of his earlier investment into subprime auto loan company Americredit, a company more than doubled his money (read this article for details)? By our calculation, his cost for ACF was less than $10 per share and the stock closed above $23 per share.
Is this the replay of ACF? Berkowitz seems to think so.
In February, Berkowitz discussed his purchasing of Citigroup in a telephone interview with Morningstar:
Recently, Berkowitz was interviewed by Fortune and he commented on the stocks purchase some more. You can check out the article here, here are few of his direct quotes:
We are not certain how much Citigroup stock will benefit his shareholders either, but if ACF investment is of any guidance, the pay-off is pretty good.
GuruFocus data shows that he purchased over 214 million shares of Citigroup Inc.or $700 million worth of common shares in 4Q09.
The Citigroup investment reminds me of his earlier investment into subprime auto loan company Americredit, a company more than doubled his money (read this article for details)? By our calculation, his cost for ACF was less than $10 per share and the stock closed above $23 per share.
Is this the replay of ACF? Berkowitz seems to think so.
In February, Berkowitz discussed his purchasing of Citigroup in a telephone interview with Morningstar:
In the U.S., this was not a bankruptcy, but it's gone through a scrubbing process, very similar to a bankruptcy, by the U.S. Treasury. Citigroup has spent a good amount of time with the U.S. government and many of its financial regulators, going through every liability and asset in the books.
After such a period of time, you normally are able to count the cockroaches. That is, the liabilities have been under a microscope for quite a period of time. There's been huge capital injections by the government. There's been a massive amount of dilution to old shareholders. And you're starting to see some stability, the beginnings.
It's very much what I call now the pig in the python. You have to look at their liabilities. So you have to look at their bad debt, and you have to continue to watch how the company is digesting its bad debt.
At the same time, you have to see the new debt that's coming in, the new loans that they're giving out. It's fascinating. It amazes me, with financial institutions, the extent, the amount of new loans that are being created in relation to the total loan portfolio.
So it's just now, in my opinion, a question of time, an ingestion period, where how many more quarters is it going to take before the new loans start to outweigh the old, existing loans?”
Recently, Berkowitz was interviewed by Fortune and he commented on the stocks purchase some more. You can check out the article here, here are few of his direct quotes:
"People are so focused on the liabilities," he says, "that they've potentially forgotten about some of the assets."
"The price is right," Berkowitz says. "It's just a question of when it becomes obvious to everyone that the worst is over."
"The only way the government was going to allow repayment was if they thought the bank was recapitalized," he says.
"It's unclear to me how much our shareholders are going to make," says Berkowitz, "but it's becoming quite clear to me they're not going to lose."
We are not certain how much Citigroup stock will benefit his shareholders either, but if ACF investment is of any guidance, the pay-off is pretty good.
