Bruce Berkowitz Cuts MBIA Stake, Exits Orchard Supply Hardware Position

Bruce Berkowitz's firm Fairholme Capital recently filed two 13G's with the SEC.  Here's a breakdown of his latest portfolio activity:


Cuts MBIA Stake Again (MBI)

Fairholme filed a 13G with the SEC on MBIA (MBI), disclosing a second round of share sales.  Two months ago, we highlighted when Fairholme initially sold MBIA shares. 

Back then, they sold 11 million shares.  Today, we see that they sold even more shares.  Fairholme now shows a 1.2% ownership stake in the company with only 2.25 million shares.  The 13G was filed due to activity on May 31st. 

This means they've reduced their position by almost 93% since the end of the first quarter.  As our premium Hedge Fund Wisdom newsletter pointed out, shares of MBI skyrocketed in May from $10 to $16 on news of a $1.6 billion cash settlement with Bank of America to settle a dispute over faulty mortgage securities.

Shares have since slid down to $13.75, but this has been another big winner for Berkowitz as he started his MBIA position back in 2010.  We also posted up Berkowitz's thesis on MBIA for those interested.

Per Google Finance, MBIA "together with its consolidated subsidiaries, 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. The Company’s United States public finance insurance business is operated through National Public Finance Guarantee Corporation and its subsidiaries (National), its structured finance and international insurance business is primarily operated through MBIA Insurance Corporation and its subsidiaries."


Exits Orchard Supply Hardware Stores Position (OSH)

Berkowitz also filed a 13G on shares of Orchard Supply Hardware Stores (OSH), revealing that he has sold completely out of the position.  The filing was required due to activity on May 31st. 

This was only a tiny position for Fairholme to begin with.  Berkowitz owns Sears Holdings (SHLD), and Sears spun-off Orchard Supply in December 2011 so that's how he initially got the shares.

Per Google Finance, OSH is "a specialty retailer primarily focused on homeowners with repair, maintenance and improvement needs. The Company operates in one segment and provides a merchandise mix, which consists of various product categories, including repair and maintenance, lawn and garden and in-home products. The Company's repair and maintenance category consists of plumbing, electrical, paint, tools, hardware, and industrial products. Its lawn and garden category consists of nursery, garden, outdoor power and seasonal products."


For more from this great investor, head to Bruce Berkowitz's checklist for investing.

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.

Bruce Berkowitz's MBIA Investment Thesis: Case Study

Yesterday, we posted up Bruce Berkowitz and Fairholme Capital's investment thesis on Sears.  Today, we're presenting another case study from the money manager: their thesis on shares of MBIA (MBI).

In his fourth case study, Berkowitz looks at numerous catalysts for the insurance company:

Catalyst #1: National Public Finance Guarantee Corporation: A stand alone subsidiary of MBIA.  Judicial confirmation of MBIA's transformation could lead to an increase in credit ratings > lower expenses > capital raise > new municipal business.

Catalyst #2: De-risking: Continual reduction in structured finance exposures, declining claim payments on second-lien RMBS

Catalyst #3: Reimbursement for claims paid: Fairholme expects MBIA to recover at least half of the gross claims paid to date in a 2012 settlement or all in a 2013 trial.


Berkowitz then argues that market price of the stock is not equal to intrinsic value, highlighting the company's contingency reserves, owner's equity, run-off earnings, and positive trends.

Embedded below is Berkowitz's investment thesis on MBIA via his case study:





If you missed his other case studies, also check out:

- Berkowitz's thesis on Sears (SHLD)

- Fairholme's investment thesis on AIG

- Berkowitz's case on Bank of America (BAC)

Tilson's Hedge Fund Positioned Conservatively, Sees Unfavorable Economic Outlook

Whitney Tilson and Glenn Tongue's hedge fund T2 Partners is faring quite well in 2010, up 13.6% net of fees. They've taken a conservative position with their portfolio based on increasing concerns of a weak economy. As we've detailed in their previous presentation, they currently favor undervalued large-cap stocks. Their July letter to investors reveals that they are currently 100% long, 70% short, leaving them 30% net long. This is below the historical average for hedge funds and T2 Partners has taken such a position for two reasons.

Firstly, they're concerned about macro factors and cite Jeremy Grantham's recent letter. Vaguely speaking, they deduce that there are three possible economic scenarios at hand that can take place over the next 2-7 years.

1. A V-shaped recovery: A scenario where the stock market could compound 7-10%.
2. A 'muddle-through' economy: Stock market could compound at 2-5%.
3. A double-dip (or worse): Somewhat similar to what Japan's gone through, stocks could be anywhere from flat to way down.

Tilson and Tongue have built a conservative portfolio as the odds have shifted unfavorably as of late. They are long high quality large-caps such as Berkshire Hathaway (BRK.A), Anheuser-Busch InBev (BUD), and Microsoft (MSFT). They've also been long BP (in-depth analysis of BP here) and Liberty Acquisition Corp. warrants as special situations plays. Additionally, we've detailed T2's new position in Alloy (ALOY). While they like these names, their economic outlook has caused them to reduce longs and add to shorts.

Secondly, they cite numerous opportunities on the short side of the portfolio. When irrationality rears its head, T2 prefers to exploit the inefficiency. As such, they feel they can enhance their returns on this side of the portfolio. Some examples of current irrationality in their view include:

- VistaPrint (VPRT) still at $33 (it's now at $30 after the release of T2's letter). This is a classic 'growth gone bust' story and they are short.

- InterOil (IOC) at $60. We've detailed in the past how T2 feels that InterOil is a public relations hype machine, releasing news tidbit after news tidbit when fundamentally the company doesn't have a whole lot going on. They've been short for a while now.

- MBIA (MBI) at $8.68. They feel that bond insurers are in a precarious position given their struggles. Bill Ackman had previously been short this name and his investment was detailed in the book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff.

- The for-profit education sector. Like many other hedge funds, T2 has joined in on the negativity parade surrounding these stocks. While they don't disclose which specific companies they are short, it most likely includes a basket of these possible candidates: Apollo Group (APOL), ITT Educational (ESI), and Corinthian Colleges (COCO). For the elaborate thesis behind this play, check out Steve Eisman's short sale of for-profit education.


Overall, T2 has been adding to short positions and is increasingly focused on large-cap bluechips on the long side of their portfolio. Embedded below is T2 Partners July letter to investors:



You can download a .pdf copy here.

To hear many other hedge funds' latest investment ideas, Tilson will be presenting at the Value Investing Congress (special discount here) along with Bill Ackman, David Einhorn, Lee Ainslie, Kyle Bass, John Burbank, and many more.

Bruce Berkowitz Buys Morgan Stanley (MS): Fairholme Portfolio Update

Bruce Berkowitz's Fairholme Capital has quite the appetite for financial companies and this partially (mainly?) stems from his confidence in a United States recovery. While he acknowledges that a double-dip recession is possible, his bets say otherwise. His Fairholme Fund (FAIRX) recently revealed its latest portfolio and here is the portfolio breakdown as of May 31st, 2010:

1. Sears Holdings (SHLD): 7.7% of the portfolio
2. AIG (AIG): 6.8%
3. Citigroup (C): 5.4%
4. Goldman Sachs (GS): 5.4%
5. Berkshire Hathaway (BRK.A): 4.7%
6. Bank of America (BAC): 4.4%
7. St. Joe (JOE): 4.3%
8. Humana (HUM): 4.0%
9. AmeriCredit (ACF): 3.6%
10. Regions Financial (RF): 3.5%
11. Spirit AeroSystems (SPR): 2.7%
12. Hertz Global (HTZ): 2.6%
13. MBIA (MBIA): 1.0%
14. Morgan Stanley (MS): < 1.0%

Keep in mind that the latest portfolio update above only reflects equity positions. As we've highlighted before, he has a large debt position in General Growth Properties as well as other corporate and convertible bond stakes. And of recent news regarding the positions above, he surely has to be happy that AmeriCredit is set to be purchased by General Motors.

We've previously detailed Berkowitz's new MBIA stake as well as the fact that he has been adding to his AIG position. What's interesting here is that Berkowitz is now one of the largest shareholders in MBIA and yet it is only a 1% position for his mutual fund. Specifically regarding his MBIA stake, Berkowitz believes that the firm will survive as it honors its guarantees and has a confident CEO in the form of Joseph Brown. Berkowitz also is fond of the move that separated the municipal bond insurance arm into a new unit. Circling back to his economic recovery theme, he thinks that policies MBIA writes now and in the near future will be lucrative.

Regarding his position in AIG, Berkowitz feels that at the end of 2011 the company will be free and clear of the government's stake and you can read his full AIG thesis here. Also, we pointed out his new position in Goldman Sachs back when he revealed it at the Value Investing Congress. Back then, it was unclear as to how large of a stake he had purchased but now we can see it's quite a sizable one at 5.4% of his fund's capital. Lastly, it's worth noting that the Fairholme Fund still has just under a 15% cash position. If opportunities arise, we'll assume that Berkowitz won't be shy. As you can see, it's quite clear: Fairholme fancies financials.

Bruce Berkowitz's Fairholme Capital Starts MBIA Position, Raises AIG Stake

Bruce Berkowitz's investment firm Fairholme Capital Management recently filed two 13G's with the SEC regarding two of its positions. Firstly, Fairholme has filed a 13G regarding shares of MBIA (MBI). Due to portfolio activity on June 30th, 2010, Fairholme now shows an 11.1% ownership stake in the bond insurer with 22,736,200 shares. The vast majority of these shares are owned by Berkowitz's mutual fund vehicle, the Fairholme Fund (FAIRX). This is a brand new position for his firm as it did not own shares back when we looked at Fairholme's portfolio from the first quarter.

While Berkowitz is now long MBIA, we've detailed how Whitney Tilson's hedge fund T2 Partners has been short MBIA. This is definitely somewhat of a battleground stock as there are many company naysayers still out there. In the past, hedge fund manager Bill Ackman had also been short the company. The saga surrounding his position is detailed in Christine Richard's book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff. Overall though, Berkowitz's stake in MBIA sticks with his contrarian bent theme.

Secondly, we see that Berkowitz's firm has disclosed a 24.3% ownership stake in the American International Group (AIG) with 32,789,000 shares. The amended 13G filing was made due to portfolio activity on June 30th, 2010. This is an increase in their position as they previously owned an 18.9% ownership stake back in May. So, over the course of the past two months, Fairholme has raised its stake in AIG by a sizable margin and you can see Berkowitz's AIG thesis here. Keep in mind that if the government were to convert its 80% ownership stake in AIG into common shares, Fairholme's ownership position would obviously be diluted. Shares of both AIG and MBIA are up sharply today after this news. In addition to these two portfolio updates, we previously covered Berkowitz's new position in Goldman Sachs (GS) as well.

Taken from Google Finance, MBIA is "provides financial guarantee insurance, as well as related reinsurance, advisory and portfolio services for the public and structured finance markets, and investment management services, including advisory services, on a global basis".

AIG is "a holding company, which through its subsidiaries, is engaged primarily in a range of insurance and insurance-related activities in the United States and abroad. AIG's four reportable segments include: General Insurance, Domestic Life Insurance & Retirement Services, Foreign Life Insurance & Retirement Services, and Financial Services".

For the latest investments from top managers, keep up to date with our hedge fund portfolio tracking series.

Hedge Fund T2 Partners Still Cautious (Investor Letter)

Whitney Tilson and Glenn Tongue's hedge fund T2 Partners recently sent out their May letters to investors and in it they briefly outline how they are still cautious on the markets. They were down 2.6% for April but are still up 10.1% for the year. A lot of their losses stemmed from short positions rallying in their faces such as MBIA (MBI), Ambac (ABK), and Netflix (NFLX) - we've also detailed some of their other short positions in the past as well. However, they won't be covering this shorts anytime soon because they say they have extreme conviction in their picks.

T2 Partners is still cautious on the markets/economy and cite various reasons for their stance such as: eight million Americans still not paying mortgages, high unemployment, and continued stimulus (both monetary & fiscal) causing large deficits. T2 essentially argues that the market is priced for a rosy outcome when the economy is by no means out of the woods yet. Their view is summed up by an interesting chart comparing long term interest rates to average P/E ratios in the market.

Embedded below is hedge fund T2 Partners' May letter to investors:

You can download a .pdf here.

For more insight from this hedge fund, we recently posted up T2's bearish presentation on the housing market as this stance obviously contributes to their overall pessimistic view in the near-term. The presentation also includes an investment idea of Anheuser Busch InBev (BUD). They presented this sequence at the recent Value Investing Congress and you can view detailed notes from the event here. For past commentary from T2, head to their annual letter.

We've also detailed a lot of hedge fund investor letters as of late and if you've missed these great reads we highly recommend checking out the latest commentary from the managers listed below (click to view their respective letters):

- Louis Bacon's Moore Capital Management

- Ricky Sandler's Eminence Capital

- David Einhorn's Greenlight Capital

- Kyle Bass' Hayman Advisors

- Jay Petschek's Corsair Capital

Make sure to check back daily as we're right in the midst of our hedge fund portfolio tracking series.