is the talented manager of the
, who surprised many by going all-out in troubled financials
after the financial crisis. When the industry failed to recover
in the timetable he anticipated, his erstwhile outperforming fund
swung to a loss of 32.4% in 2011, while the S&P 500 returned
2.1%. But Berkowitz has never expressed doubt about his theses
for the companies in his portfolio or that their stock prices
would eventually recover to match the strength of their
underlying fundamentals. Here is an update on how he is faring so
far in 2012.
AIG is Berkowitz's largest holding, at 41.1% of his portfolio. He
owns a total of 87,987,894 after unloading some shares over the
previous three quarters. He made his largest purchase in the
second quarter of 2011 with 58,966,502 shares at an average price
of $30.50, near the bottom.
AIG significantly weighed down Berkowitz's returns in 2011,
plunging 62.3% that year. But to date in 2012, AIG is up 50% to
trade for nearly $35 a share.
American International Group is the multinational insurer that
would have collapsed - and potentially sparked the collapse of
the entire U.S. financial system - during the financial crisis of
2008 due to what Federal Reserve Chairman Ben Bernanke called
"irresponsible bets" if not for a $182 billion bailout from the
Federal Reserve and Treasury Department.
In the second quarter, AIG reported its third consecutive quarter
of earnings, with revenue down both sequentially and
year-over-year. That quarter the company successfully paid off
its Maiden Lane III loan from the Federal Reserve Bank of New
York. It also bought back $2 billion of its shares from the U.S.
Treasury, which held a stock offering of 189 million AIG shares
in May, gaining proceeds of $5.7 billion.
Berkowitz commented on AIG in his second quarter letter:
"Our best idea remains AIG (
) common (35% of the Fund) with a reported book value of $57 per
share. There are few occasions when systemically important
franchises sell for half of book value and are profitable. This
is one of those times. AIG warrants held by the Fund (another 3%
of the Fund) provide the right to 21+ million shares at $45, or
maybe more shares at lower strike prices for the next 34 quarters
if dividends above $0.675 per trailing 12-month period are paid."
Sears Holdings Corporation (
Berkowitz owns 16,829,880 shares of Sears Holdings, after adding
16,400 shares at an average price of $55 in the second quarter.
It is 14.6% of his portfolio and 15.81% of the company.
Sears has also had a better year so far. Since the beginning of
the 2012, Sears' stock price has gone up 64%. In 2011, the story
was quite different. Sears' shares plummeted about 57%.
Sears is a retailer with 3,900 stores in the U.S. and Canada that
noted hedge fund manager Eddie Lampert has been trying to turn
around. In four of the last five quarters, the company has
reported losses as the company continues to implement new
changes. "Our poor financial results in 2011, culminating in a
very poor fourth quarter, underscore the need to accelerate the
transformation of Sears Holdings," Lampert said in the company's
2011 letter. In August 2012, the S&P 500 delisted the company
due to the "small public float," though the stock has been one of
its top performers.
In August, Berkowitz posted a Case Study on Sears in which he
argued that the recent market price was not equal to the
company's intrinsic value. Key assets for Sears include: real
estate, operations, top brands, leadership, liquidity and
He explains each in detail here
Berkowitz also commented on the company in his second quarter
"Sears Holdings (
) (11% of the Fund) is one of the largest corporate real estate
organizations in the world, with a portfolio of retail locations
that is second to none. Generally Accepted Accounting Principles
("GAAP") mandate valuing their real estate at the lower of cost
or market. GAAP would force the Dutch settlers to value Manhattan
today at the 1626 purchase price of $23.70. The company's
reported book value of $43 understates real values."
Bank of America (
Berkowitz owns 101,700,355 shares of Bank of America, his third
largest holding. The stock has also progressed this year, going
up 43% year to date. It will have to increase further for
Berkowitz to realize gains, however, as he purchased most of his
shares in the mid-to-high teens and shares trade for about $8 on
Berkowitz commented on the holding in his second quarter letter:
"Bank of America (
) is the Fund's next largest financial holding (9% of the Fund)
affected by the great housing price collapse. The company's
reported book value is over $20 per share. We believe that
America's bank is returning to its retail roots (think of Wells
Fargo) with a $1 trillion deposit franchise and that bank profits
will skyrocket as legacy real estate loans burn-off."
Most of the other stocks rounding out Berkowitz's top 10 have
gained in 2012, with a few down slightly. Even St. Joe (
) is up over 30%.
Overall, the Fairholme Fund (
) is up 30.8% year to date. By comparison, the S&P is up
See Bruce Berkowitz's portfolio here. Also check out the
Undervalued Stocks, Top Growth Companies and High Yield stocks of
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