Notes From Bruce Berkowitz's CSIMA Presentation ~ market folly

Monday, February 11, 2013

Notes From Bruce Berkowitz's CSIMA Presentation

Last week we posted up notes from the Columbia Investment Management Conference.  While those notes weren't directly attributed to particular speakers, one speaker did go 'on the record' at the event.  So today we present notes from comments made by Bruce Berkowitz of Fairholme Capital at CSIMA 2013.

Notes From Bruce Berkowitz's CSIMA Talk

- On diversification: it dumbs us down because we can't focus on a few things that can make a difference.  You're most likely not the only fund your investors are in so you have to be more risk averse for your own job safety.  Most managers hold too many positions.  Less than 10 positions typically equals career risk.  The benefits of diversification fall off between 10-30 stocks in a given portfolio.  If investors put around 10% in one fund and that fund holds 10 stocks, they effectively hold 100 stocks.

- On spending time with clients: it's actually a disservice to them to spend time away from investment research.  You need to be focused on your investment process as it will benefit them more than spending time with them.

- On time management:  the best way to maximize your time is to say "no" to a lot of people.  He likes to get the most out of every minute so he's even listening to books on tapes.

- On investing: If you hustle on the investment trail and do it 24/7 you'll be a great investor 30 years from now.  Take 2 steps back to take 10 steps forward, sometimes it's necessary. He reads company reports before going to bed and is always listening to conference calls.  He also emphasized decoupling from the herd or the groupthink of Wall Street (most likely why he's in Miami instead of New York).  To do well in life, you've got to be excited. 

- On Sears (SHLD): He still likes the stock and the real estate is what's attractive to him.  It has more commercial square feet than Simon Property Group (SPG), but SPG is worth 10x more than Sears (using enterprise value).  Some investors argue that Eddie Lampert isn't a retailer, but look at AutoNation  (AN), which he's also been involved in.  Berkowitz feels that he has a nice margin of safety at the prices he bought at and has the potential to make a lot of money.  (We've previously posted Berkowitz's case study on Sears.)

- On Bank of America (BAC): A lot of people are fixated on the Countrywide problems, but great earnings are there and in the future that Countrywide drain won't be there so the earnings power is just starting to show.  (We've also posted Berkowitz's Bank of America case study.)

- On American International Group (AIG): The company will eventually become a profitable insurance business as they're the price leader. (You can also view Berkowitz's thesis on AIG here.)

Update: There's also some audio from Berkowitz's talk which we've embedded below via Investing In Knowledge:

For more from the Columbia Investment Management Conference, be sure to check out more notes from CSIMA 2013.

And for more from the Fairholme manager, be sure to also check out Berkowitz's interview at the University of Miami.

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