Fairholme Capital Reduces Sears Canada Position

Bruce Berkowitz's investment firm Fairholme Capital has filed an amended 13D regarding shares of Sears Canada (SRSC).  Per the filing, Berkowitz now owns 18.7% of SRSC with just over 19 million shares.

This is a decrease of over 2.39 million shares since the end of July when Fairholme reported owning over 21.43 million SRSC shares. 

The latest portfolio activity comes in late July and early August as Fairholme sold shares as high as $0.61 and as low as $0.25.  After this round of sales, Fairholme still owns 19 million SRSC shares.

We've covered other recent portfolio activity from Fairholme Capital here.

Fairholme Capital Buys More Sears Holdings

Bruce Berkowitz's investment firm Fairholme Capital has filed a Form 4 with the SEC regarding its position in Sears Holdings (SHLD).  Per the filing, Fairholme acquired 222,100 SHLD shares in total across March 15th, 16th, and 17th at prices of $8.75, $8.76, and $8.86.

After these purchases, Fairholme now owns over 27.98 million shares.

This is the second time Fairholme has acquired SHLD shares this month as we previously highlighted Berkowitz's SHLD activity.

Per Google Finance, Sears Holdings is "an integrated retailer. The Company is the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). It operates through two segments: Kmart and Sears Domestic. It operates approximately 940 Kmart stores across over 50 states, Guam, Puerto Rico and the United States Virgin Islands. Kmart stores carry an array of products across various merchandise categories, including seasonal merchandise, toys, lawn and garden equipment, food and consumables and apparel, including products sold under labels, such as Jaclyn Smith, Joe Boxer and Alphaline and certain Sears brand products (such as Kenmore, Craftsman and DieHard) and services. Its Sears Domestic segment's operations consist of full-line stores, specialty stores, commercial sales and home services. Full-line stores offer an array of products and service offerings across various merchandise categories, including appliances, consumer electronics/connected solutions and tools." 

Fairholme Capital Buys Some Sears Shares

Bruce Berkowitz's investment firm Fairholme Capital has filed a Form 4 with the SEC regarding its position in Sears Holdings (SHLD).  Per the filing, Berkowitz bought 84,200 SHLD shares on March 10th at $8.33 and then bought another 197,700 shares on March 14th at $8.82.

Fairholme owns over 27.7 million shares of SHLD and keep in mind they own warrants as well with an expiration of December 15th, 2019 and exercise price of $25.686.

Per Google Finance, Sears Holdings is "an integrated retailer. The Company is the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). It operates through two segments: Kmart and Sears Domestic. It operates approximately 940 Kmart stores across over 50 states, Guam, Puerto Rico and the United States Virgin Islands. Kmart stores carry an array of products across various merchandise categories, including seasonal merchandise, toys, lawn and garden equipment, food and consumables and apparel, including products sold under labels, such as Jaclyn Smith, Joe Boxer and Alphaline and certain Sears brand products (such as Kenmore, Craftsman and DieHard) and services. Its Sears Domestic segment's operations consist of full-line stores, specialty stores, commercial sales and home services. Full-line stores offer an array of products and service offerings across various merchandise categories, including appliances, consumer electronics/connected solutions and tools."

Fairholme Capital Adds To Sears Canada Position

Bruce Berkowitz's investment firm Fairholme Capital has filed a 13D on shares of Sears Canada (SRSC).  Per the filing, Fairholme now owns 20% of SRSC with 20.37 million shares.

This is an increase of 153,354 shares since the end of the third quarter.  The filing was made due to activity as recent as November 29th with the bulk of their purchase coming at $1.79 per share.

You can view the rest of Fairholme's equity portfolio in the new issue of our newsletter here.

Per Yahoo Finance, Sears Canada "operates as a multi-format retailer in Canada. It operates department stores that offer a range of merchandise, including apparel, home fashions, and appliances; home stores, which provide home furnishings, appliances, and home electronics; outlet stores that sell surplus merchandise."

Fairholme Capital Adds To Lands End Stake

Bruce Berkowitz's investment firm Fairholme Capital has filed an amended 13G with the SEC regarding its position in Lands End (LE).  Per the filing, Fairholme now owns 10.5% of Lands End with over 3.35 million shares.

This is an increase of 353,200 shares since the end of the second quarter when they owned 2.99 million shares.  The filing was made due to activity on September 30th.

Berkowitz originally received his stake in LE as a spin-off from Sears Holdings (SHLD), which he has been a big holder of for some time.

Per Google Finance, Lands End is "a multi-channel retailer of casual clothing, accessories and footwear, as well as home products. The Company operates through two segments: Direct and Retail. The Company offers products through catalogs, online at www.landsend.com. The Direct segment sells products through the Company's e-commerce Websites, international Websites and direct mail catalogs. The Retail segment sells products and services through Lands' End Shops at Sears across the United States, the Company's standalone Lands' End Inlet stores and international shop-in-shops. The Company's product categories include Apparel and Non-apparel. The Non-apparel category offers accessories, footwear and home goods. The Company provides embroidery, monogramming, gift wrapping, shipping and other services. In addition, the Company offers sheets and pillowcases, duvet covers and comforters, blankets and throws, mattress pads, towels, rugs and mats, school uniforms and shower curtains."

Bruce Berkowitz Acquires More Sears Shares

Bruce Berkowitz's Fairholme Capital has filed another Form 4 with the SEC regarding its position in Sears Holdings (SHLD).  Per the filing, Fairholme bought SHLD on June 3rd, 6th, and 7th at prices of $13 and $13.5. 

Berkowitz acquired 260,600 shares in total.  After these buys, he now owns over 27.5 million shares.

This is the second time he's filed a Form 4 recently as we highlighted Fairholme's other recent buy of SHLD.

Per Google Finance, Sears Holdings is "an integrated retailer. The Company is the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). It operates through two segments: Kmart and Sears Domestic. It operates approximately 940 Kmart stores across over 50 states, Guam, Puerto Rico and the United States Virgin Islands. Kmart stores carry an array of products across various merchandise categories, including seasonal merchandise, toys, lawn and garden equipment, food and consumables and apparel, including products sold under labels, such as Jaclyn Smith, Joe Boxer and Alphaline and certain Sears brand products (such as Kenmore, Craftsman and DieHard) and services. Its Sears Domestic segment's operations consist of full-line stores, specialty stores, commercial sales and home services. Full-line stores offer an array of products and service offerings across various merchandise categories, including appliances, consumer electronics/connected solutions and tools."

Bruce Berkowitz Buys More Sears Holdings

Per a Form 4 filed with the SEC, Bruce Berkowitz's Fairholme Capital has increased its position in Sears Holdings (SHLD). 

Fairholme was buying shares on May 27th, May 31st, and June 1st.  In total, Fairholme purchased 778,000 SHLD shares at prices ranging from $12.48 to $13.3.  After these buys, Fairholme owned over 27.23 million shares of Sears.

For more from this manager, be sure to check out Bruce Berkowitz's investment checklist.

Per Google Finance, Sears Holdings is "an integrated retailer. The Company is the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). It operates through two segments: Kmart and Sears Domestic. It operates approximately 940 Kmart stores across over 50 states, Guam, Puerto Rico and the United States Virgin Islands. Kmart stores carry an array of products across various merchandise categories, including seasonal merchandise, toys, lawn and garden equipment, food and consumables and apparel, including products sold under labels, such as Jaclyn Smith, Joe Boxer and Alphaline and certain Sears brand products (such as Kenmore, Craftsman and DieHard) and services. Its Sears Domestic segment's operations consist of full-line stores, specialty stores, commercial sales and home services. Full-line stores offer an array of products and service offerings across various merchandise categories, including appliances, consumer electronics/connected solutions and tools. ."

Berkowitz's Fairholme Fund Annual Report: AIG, Bank of America, Fannie/Freddie

Bruce Berkowitz is out with his Fairholme Fund's (FAIRX) annual report for 2014.  The concentrated investor outlines his thoughts on AIG (AIG), Bank of America (BAC), Fannie Mae & Freddie Mac, Sears (SHLD), Leucadia (LUK), and St. Joe (JOE).

Berkowitz dedicates the majority of his letter to his Fannie & Freddie investments, saying that, "Today, Washington bureaucrats are unlawfully holding these profitable companies captive in perpetual conservatorship."

Regarding his two largest positions (AIG and BAC), Fairholme's manager says that both need to "prove that core operations are capable of earning an average of 10% return on equity and demonstrate that such profits are distributable to shareholders.  We anticipate growing profits, dividends, and buybacks from both in the future, particularly when interest rates normalize."

Embedded below is the Fairholme Fund's annual report for 2014:



For more from this manager, be sure to also check out Berkowitz's Wealthtrack interview.

Fairholme Capital Purchases Participation Interest in Sears Short-Term Loan

Bruce Berkowitz's Fairholme Capital has filed an amended 13D with the SEC regarding their position in Sears Holdings (SHLD).  Per the filing, Fairholme now owns 23.1% of the company with 24.64 million shares.

Berkowitz has now bought an additional 49,200 shares since his last amended 13D disclosure recently.

More importantly though, the filing notes that Berkowitz has participated in Sears' short-term loan.  The 13D indicates that:

"On September 30, 2014, The Fairholme Partnership, LP (the "Partnership"), a private fund affiliated with the Reporting Persons, purchased a 6.25% participation interest in the Short-Term Loan from entities affiliated with ESL Investments, Inc. pursuant to that certain Amended and Restated Participation Agreement, dated September 30, 2014, by and among PYOF 2014 Loans, LLC, the Partnership and affiliates of the ESL Investments, Inc. (the "A&R Participation Agreement")."

Bruce Berkowitz's Wealthtrack Interview: AIG, BAC, FNMA

Consuelo Mack's Wealthtrack recently sat down with Fairholme Capital's Bruce Berkowitz to talk about his investments.  These days, he manages around $8 billion and his largest holding continues to be AIG (AIG).

He says he's still focused on financials because that's what he knows and what's in his circle of competence.  The main thing he's drawn to is the huge stature of some of the companies he's invested in.  He likes systemically important institutions (such as AIG and Bank of America).


On AIG

Berkowitz notes that AIG's tangible book value is around $75 and he's waiting for the company to trade around book value.  He says he has to keep trimming the position slightly because as the price increases, it becomes an even larger part of his portfolio (and it's already almost 50% of his portfolio).


On Bank of America

He bought Bank of America (BAC) because he felt it would eventually become more like a bank like Wells Fargo after restructuring and settling litigation.  As it still sells below book or runoff value, he says he's getting the "future for free and a discount on the books."


Fannie/Freddie

He compares this situation to AIG in that it's a very important organization where the government is involved.


Curiously absent from the discussion was another of Berkowitz's holdings: Sears.  Shares have declined recently and Berkowitz has been interested in participating in the company's short-term loan.


Embedded below is the video of Berkowitz's interview with Wealthtrack:

Bruce Berkowitz Looking to Participate in Sears Short-Term Loan

Bruce Berkowitz's investment firm Fairholme Capital has filed an amended 13D on shares of Sears Holdings (SHLD).  We previously highlighted how Berkowitz bought more SHLD recently.

His previous filing noted that St. Joe (JOE) was in discussions to possibly participate in Sears' $400 million secured short-term loan.  Per the new filing, that fell through.

However, the new 13D indicates that Fairholme is in discussions concerning a "substantially smaller participation in the short-term loan."

It also appears as though Fairholme has sold 26,400 SHLD shares since his previous 13D filing only last week.

Bruce Berkowitz's Fairholme Buys Sears Shares

Bruce Berkowitz's firm Fairholme Capital just filed a 13D with the SEC regarding shares of Sears Holdings (SHLD).  Per the filing, Fairholme now owns 24% of SHLD with over 25 million shares.

This means Berkowitz has added to his position size by over 850k shares since the end of the second quarter.  He's been a long-term Sears shareholder and shares have nosedived from $45 earlier in the year down to current levels of under $27.

The vast majority of this decline has been in recent days as news came out that the company was borrowing $400 million from its CEO Eddie Lampert's hedge fund (ESL Investments).  This has prodded fears that the company could eventually be in trouble.

Berkowitz was buying in early September around $32.28 but then ramped up purchases on September 5th and 8th around $33.21. It will be interesting to see if he ramps up his purchases even further now that shares are even lower.

Fairholme's filing also notes that one of their other investments is potentially involved here: St. Joe (JOE).  The filing indicates that, "The St. Joe Company, an affiliate of the Fund and Fairholme, is in discussions with the Issuer regarding the $400 million secured short-term loan disclosed on the 8-K filed by the Issuer on September 15, 2014.  The St. Joe Company may invest up to $100 million in participations relating to theShort Term Loan."

Berkowitz's 13D filing didn't note any other plans or proposals at this time.


Per Google Finance, Sears Holdings is "is a retailer with 2,172 full-line and 1,338 specialty retail stores in the United States operating through Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears) and 500 full-line and specialty retail stores in Canada operating through Sears Canada Inc. (Sears Canada), a 95%-owned subsidiary. The Company operates in three segments: Kmart, Sears Domestic and Sears Canada."

Bruce Berkowitz Talks Fannie/Freddie Preferreds, AIG & Sears

Fairholme Capital's Bruce Berkowitz owns preferred shares of both Fannie Mae and Freddie Mac and joined David Faber of CNBC to talk about the securities in a rare interview.


Fannie/Freddie Preferreds

We've highlighted before that Berkowitz is seeking dividends on these securities.  The fund manager notes that you can buy the securities at such discounts with the potential for them to trade at par again if they start paying dividends.

Fairholme likes to buy stakes in systemically important institutions and Berkowitz says Fannie & Freddie are just that.


Berkowitz Talks AIG

He also touched on his stake in AIG (AIG).  He said: "Investing is all about comparing what you give versus what you get.  Now when you look at today's stock price with AIG, it still sells significantly below liquidation value.  So at some point the stock market price will meet the book value of AIG."  

He says book value is around $60 per share currently and he expects liquidation value will double in a few years. 

So when will he sell?  He said he'll have to consider the idea of selling in the event that shares eventually trade at book value & higher. 

He also addressed his large position size, noting that Benjamin Graham once distributed shares of GEICO rather than selling when the position size became too large for his fund.  So it sounds like Berkowitz is considering this option as well for the future.


Talks Sears (SHLD)

Berkowitz thinks Eddie Lampert has been doing a good job and he notes he's in the minority in that opinion.  He compares Sears to Simon Properties (SPG) and it's clear Berkowitz views as SHLD as a real estate play.


Embedded below is the video of Berkowitz's interview:



For more on this manager, you can check out Fairholme's latest portfolio in the new issue of our premium newsletter.

Bruce Berkowitz's Fairholme Reduces MBIA Stake

Bruce Berkowitz's investment firm Fairholme Capital has just filed an amended 13G with the SEC regarding shares of MBIA (MBI).  Per the filing, Fairholme has disclosed that they've reduced their position in MBI by 11 million shares.

This marks around a 26% reduction in their position size.  The filing was required due to portfolio activity on March 31st and Fairholme now owns 16.3% of the company.  We've previously posted up Berkowitz's investment thesis on MBIA for those interested.

Per Google Finance, MBIA  "operates the financial guarantee insurance businesses in the industry and is a provider of asset management advisory services. These activities are managed through three business segments: United States public finance insurance, structured finance and international insurance, and advisory services. MBIA’s United States public finance insurance business is operated through National Public Finance Guarantee Corporation and its subsidiaries, its structured finance and international insurance business is primarily operated through MBIA Insurance Corporation and its subsidiaries, and its asset management advisory services business is primarily operated through Cutwater Holdings, LLC and its subsidiaries. It also manages certain business activities through its corporate, asset/liability products, and conduit segments. The corporate segment includes revenues and expenses that arise from general corporate activities."

For more on Fairholme, head to a recent interview with Berkowitz as well as notes from his CSIMA presentation.

Fairholme's Bruce Berkowitz On Closing His Fund To New Investors & Talking Potential Future Vehicles

Fairholme Capital's Bruce Berkowitz recently sat down with Bloomberg and talked about his concentrated approach and how a mutual fund might not be the ideal vehicle for his strategy.

He mentioned he would be closing his fund to new investors, saying:

"Less is more.  If more money came in (to Fairholme), I can't buy more AIG because we're so concentrated ... so I do not want a lot of cash coming in that would potentially dilute those positions for existing shareholders."

He's focused on having shareholders who are truly long-term investors.  After all, every fund manager desires 'permanent capital' or as close to it as they can get. 

On that front, Berkowitz was asked about the Fairholme Partnership perhaps transitioning to a vehicle that has a 5-year lockup where fickle investors can't pull capital on a whim.  So what's he have up his sleeve?  When pressed on the issue, Berkowitz said to "stay tuned."

Mutual fund rules have essentially prevented Berkowitz from buying more Bank of America (BAC).  When asked if he'd like to buy more, he had only one word: "yes."

Embedded below is Bruce Berkowitz's interview with Bloomberg:



For more on this investor, definitely be sure to check out notes from Bruce Berkowitz's CSIMA presentation.

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.

Bruce Berkowitz Interview at University of Miami

Fairholme Capital's Bruce Berkowitz recently sat down for a conversation with the "Executive in Residence" program at University of Miami's business school.  Here are some key takeaways and select quotes from him:

On the macro: "At Fairholme, we tend not to think too much about the macro picture... but it's clear: a recovery."

On his approach: "We buy that which is hated.  When it's hated, it's usually cheap.  We usually are too early, we suffer from premature accumulation ...  We want to make sure that when we invest in something, that there's a big margin of safety."

On why he focuses less on the income statement: "There are less ways to cheat on a balance sheet than on an income statement."

On a question he asks: "What's the worst thing that can happen, and can we still make money?" (assuming that bad thing happens)

On mistakes: "Why do so many people make the same mistake over and over again?  One of the reasons has to do with biology ... with how your brain is wired.  In the last couple of years, you've had to be more a psychologist than an accountant. That's where the behavioral finance issue comes in.  You get into all the issues how people can be their own worst enemy."

His last point is one of the most important as so many great investors have talked about setting aside emotion when managing money.  We've also highlighted Blue Ridge Capital's behavioral finance reading list which is recommended.

On permanent capital:  "That is the secret sauce: permanent capital.  That is essential.  I think that's the reason Buffett gave up his partnership.  You need it, because when push comes to shove, people run ... That's why we keep a lot of cash around."


Embedded below is the video of Berkowitz's full interview:



More resources on this investor: an additional interview with Berkowitz on portfolio concentration as well as Berkowitz's checklist for investing.

Bruce Berkowitz on Portfolio Concentration & His Investments: WealthTrack Interview

Bruce Berkowitz of Fairholme Capital recently appeared on Consuelo Mack's WealthTrack to talk about his approach and his investments.


Berkowitz on Portfolio Concentration

Berkowitz said that, "The history of success, those who have succeeded well... they are focused on few activities.  He also went on to ask: "Why would you possibly want to buy your 10th best idea, if you can buy more of your best idea?"  He believes it makes sense to diversify more if you have less confidence in your picks though.

The Fairholme man doesn't think you need more than 10 stocks in a portfolio.  He said that you only need "a few good ideas" in a lifetime to do extremely well.  He likes to invest over the long-term and typically looks at investments with a five-year horizon.


Fairholme's Ideas

"Ignore the crowd" is Berkowitz's investing mantra.  At the time he made his AIG investment, he was definitely following that saying.  Nowadays, AIG is perhaps becoming more crowded as investors come around to the name and the government sells down its stake.  We've talked about how various hedge funds have been buying AIG this year.

We've posted up Berkowitz's AIG thesis as well as Glenn Tongue's presentation on AIG from the recent Value Investing Congress for more in-depth color on the name.

Berkowitz also has a large holding in Bank of America (BAC) as well, noting that many investors aren't touching it until "uncertainty" lifts.  Speaking about his financial purchases, he says he bought "systemically important companies at a fraction of their liquidating values."


Fairholme's Portfolio

Here's a look at Fairholme Fund's top three holdings as of the end of September:

1. AIG (AIG): 36.2% of fund
2. Sears Holdings (SHLD): 10.8%
3. Bank of America (BAC): 9.9%

Embedded below is the video of Berkowitz's interview:



For more on this investor, check out the following resources from Berkowitz himself:

- Berkowitz's MBIA investment thesis

- Berkowitz's Sears thesis

- Fairholme's presentation on Bank of America

Bruce Berkowitz's Investment Thesis on Bank of America (BAC): Slideshow Presentation

Bruce Berkowitz of Fairholme Capital has put together a slideshow presentation on Bank of America (BAC) that outlines his investment thesis on the company.

Just yesterday, we shared Berkowitz's investment thesis on AIG (his largest holding). Today, we shift to his third largest position as of the end of the year: Bank of America.

Here are his main reasons for owning BAC shares:

- Trades at less than one-third book value

- Core businesses generating 1% return on assets and 10% return on equity

- Fortress balance sheet

- Largest US retail deposit market share and serves one in every two US households

And the last one is a kicker: "essential to global economic security." You want too big to fail? You got it.


Berkowitz sees a 20% implied annual return on his investment in Bank of America, which he argues is a reasonable return since you're buying BAC for less than half of book value. He also highlights trends improving in BAC's favor: a strengthening job market, a stabilizing housing sector, and improving fundamentals in the financial sector.


Margin of Safety: Fairholme's leading man says that $7 of BAC shares buys you something that's worth $20+.


Thesis Simplicity: Yesterday, we highlighted Sam Zell's advice on investing where he said something is only worth buying if you can explain the thesis in a few sentences.

Regarding BAC, Berkowitz writes, "Its earnings power has been disguised by the intense provisioning for loan losses. But when the provisioning gets back to a normal level, you'll start to see that incredible earnings power come down to the bottom line. And it's as simple as that."


Embedded below is Bruce Berkowitz's slideshow presentation on Bank of America:



For other presentations from Fairholme, check out Berkowitz's AIG thesis & presentation.

And to learn about his approach as an investor, head to Berkowitz's checklist for investing.

Bruce Berkowitz's Investment Thesis on AIG (Slideshow Presentation)

Bruce Berkowitz of Fairholme Capital has put together a case study on his investment in American International Group (AIG). Given that many investors love seeing analysis from prominent investors, we figured this was a useful resource for readers.

The Fairholme manager frames AIG as a company that trades at less than one-half tangible book value, has a fortress balance sheet, has a shareholder equity-to-assets ratio of 15%, and has a leading position in its market.

Berkowitz believes that a 10% return on owner's equity = a 20% implied annual return on investment. For a further look at the investment thesis, we've analyzed AIG in the August 2011 issue of our Hedge Fund Wisdom newsletter as well.


Circle of competence: Berkowitz echoes a concept often taught by Warren Buffett himself: invest in your circle of competence. Berkowitz had experience with insurance companies and found one trading at attractive prices.

Margin of Safety: The Fairholme manager also touches on a key tenet as outlined by Baupost Group's Seth Klarman: a margin of safety. Berkowitz says that you give $25 and received $45 worth of AIG assets.

Courage of Conviction: He lastly highlights the lonely road contrarians sometimes face. When the going got tough, he stuck to his guns. After all, Fairholme's slogan is: "ignore the crowd."

Many great investors are of the belief that your highest conviction picks should garner the most capital. Berkowitz obviously follows this school of thought as his AIG position represented almost 35% of his firm's reported assets at the end of 2011.


Embedded below is Bruce Berkowitz's case study on AIG:



To learn more from this investor, head to Bruce Berkowitz's checklist for investing.