Fairholme/Berkowitz

[rishig]

Fairholme's 2016 conference call live now:

http://www.fairholmefunds.com/confcall2016

[Guest notorious546]

he loves to say misunderstood

[tede02]

I guess SHLD is still a turn-around play.  Ugh.... :-\ ::)

[BTShine]

He did say he's met with, and presented to, the Board of Directors.  He also said he expects the SHLD cash drain to stop this year.  That's big news IMO.

[tede02]

I'm hoping the cash drain stops because they finally start winding down the retail operation and sell the brands.

[adesigar]

He did say he's met with, and presented to, the Board of Directors.  He also said he expects the SHLD cash drain to stop this year.  That's big news IMO.

 

That was the most important piece of news in the call about SHLD. Also he mentioned that he suggested to the board the need to give more info to better understand and value SHLD. Everything else he said was already know (Pension, Voluntary Cash burn, Tech spend, SYW spend, etc).

 

2nd interesting piece of info for me was that he said had recommended to DNOW and MRC that they merge.

 

 

 

 

[CorpRaider]

I'm hoping the cash drain stops because they finally start winding down the retail operation and sell the brands.

 

At a minimum just run a small retail footprint with appliance, home services, auto and maybe tools.  Basically, only keep the stuff men would buy.

 

Did anyone rip him a new on for sending them a big tax bill in connection with a shitty AR number? 

[tede02]

I'm hoping the cash drain stops because they finally start winding down the retail operation and sell the brands.

 

At a minimum just run a small retail footprint with appliance, home services, auto and maybe tools.  Basically, only keep the stuff men would buy.

 

Did anyone rip him a new on for sending them a big tax bill in connection with a shitty AR number?

 

I agree. 

 

They did talk about the capital gains.  Bruce basically said he does pay attention to taxes and noted that he had to pay his share because all of his liquid net worth is in the fund.  Said he didn't want to sell losers to offset the gains and have to wait 31 days to buy them back (for fear the prices would go up). 

 

Also noted that his own mother fired him last year. 

[CorpRaider]

LOL.  Awesome.  I wonder if he gave her an in-kind distribution of SHLD common. 

 

So he didn't go the Ackman route and blame his poor performance on having legions of copycats.  Hey one thing Ackman didn't mention (I can't believe he failed to note) is THAT is a problem he clearly solved for a while and won't have to deal with next year!  haha.

[mateo999]

Is there a transcript of the call available (like the pay said there would be).  I couldn't find it after a full 45 seconds of looking. Can anyone post if it exists? Thanks in advance.

[OracleofCarolina]

Berko will post one shortly...give it a day or two

[Evolveus]

Here is the link to the transcript from the recent conference call:

 

http://www.fairholmefundsinc.com/Documents/Call2016.pdf

 

[CorpRaider]

Finally read the transcript last night.  He said banks are now regulated utilities and BAC should spin off Merrill and U.S. Trust, which are nothing of the sort.  Yes, please.

 

Also interesting comments on DNOW and MRC.  Has taken positions and believes they should merge.

[muscleman]

Here is the link to the transcript from the recent conference call:

 

http://www.fairholmefundsinc.com/Documents/Call2016.pdf

 

Thanks a lot!

"Wells Fargo was constantly testing new lows, plunging on fears of its

California real estate loan exposure. The market was unbelievably fearful, and the

company’s share price was trading at just two times pre-tax, pre-provision earnings. "

 

"I can’t help but

conclude that our current portfolio has as much, if not more performance potential than

any of the past investments. "

 

 

I don't understand this. Can he point to me the pre-tax, pre-provision earnings of BAC at this moment? It is far more than 2x.

[BargainValueHunter]

Well now it seems that just over half of Fairholme is either Sears or St. Joe.

 

Could it be that Berkowitz sees a significant increase in inflation in the near to medium term?

 

I am just trying to figure out how SHLD and JOE are the two best options in the investing universe (at least in his mind).

[valueyoda]

I think he is no longer suffering from premature accumulation, but rather from delayed distribution.

[muscleman]

His portfolio shrank from 3.2 bn to 1.6 bn in just 6 months! I bet there is a lot of redemption.

But I know in dataroma you don't see his cash positions. Is he sitting on a pile of cash or is the redemption causing the shrank?

 

I can see that he is unwilling to sell the two positions that haven't worked out for 10 years.

[doughishere]

Buffetts thoughts on reits....may or may not be helpful. UGA 1999?

 

 

Question:  The securitization of real estate?

 

Buffett: There has been enormous securitization of the debt too of real estate and that is one of the items right now that is really clogging up the capital markets. The mortgage back securities are just not moving, commercial, not residential mortgage backs.  But I think you are directing your question at equities probably.  The equities, if you leave out the corporate form, have been a lousy way to own equities. You have interjected a corporate income tax into something that people individually have been able to own with a single tax, and to have the normal corporate form you have a double taxation in there.  You really don't need it and it takes too much of the return.    REITS have, in effect, created a conduit so you don't get the double taxation, but they also generally have fairly high operating expenses.  If you get real estate, let's just say you can buy fairly simple types of real estate at an 8% yield, or thereabouts, and you take away close to 1% to 1.5% by the time you count stock options and everything, it is not a terribly attractive way to own real estate. Maybe the only way a guy with a $1,000 or $5,000 can own it but if you have $1 million or $10 million, you are better off owning the real estate properties yourself instead of sticking some intermediary in between who will get a sizable piece of the return for himself.  So we have found very little in that field.  You will see an announcement in the next couple of weeks that may belie what I am telling you today.  I don't want you to think I am double crossing you up here.  But generally speaking we have seen very little in that field that gets us excited.  People sometimes get very confused about--they will look at some huge land company, like Texas Pacific Land Trust, which has been around over 100 years and has got a couple of million acres in Texas.  And they will sell 1% of their land every year and they will take that (as income? Garbled) and come up with some huge value compared to the market value. But that is nonsense if you really own the property.  You can't move.  You can't move 50% of the properties or 20% of the properties, it is way worse than an illiquid stock.  So you get these, I think, you get some very silly valuations placed on a lot of real estate companies by people who really don't understand what it is like to own one and try to move large quantity of properties.    REITS have behaved horribly in this market as you know and it is not at all inconceivable that they become a class that would get so unpopular that they would sell at significant discounts from what you could sell the properties for.  And they could get interesting as a class and then the question is whether management would fight you in that process because they would be giving up their income stream for managing things and their interests might run counter to the shareholders on that.  I have always wondered about REITS that have managements they say their assets are so wonderful, and they are so cheap and then they (management) go out and sell stock.  There is a contradiction in that.  They say our stock is very cheap at $28 and then they sell a lot of stock at $28 less an underwriting commission.  There is a disconnect there. But it is a field we look at and I can understand real estate, and we would be open for very big transactions periodically.  If there was a LTCM situation translated to real estate, we would be open to that, the trouble is so many other people would be too that it would unlikely go at a price that would get us really get us excited.

[adesigar]

Semi Annual Report is out

 

http://www.fairholmefundsinc.com/Letters/Funds2016SemiAnnualLetter.pdf

[BargainValueHunter]

Man, his Sears defense gets weaker and weaker every half-year. Why not just sell and get rid of the cancer all at once?!?!

[fareastwarriors]

Isn't he a board member of Sears now? He might as well just go down with It. *sarcasm*

[dwy000]

Wow, you now have to go back 15 years to get a cumulative return that beats the S&P 500.  Oh how the mighty have fallen.  Even if the investments now pan out I don't know if it's enough to make up for the size and tenor of the declines.

[Jurgis]

Wow, you now have to go back 15 years to get a cumulative return that beats the S&P 500.  Oh how the mighty have fallen.  Even if the investments now pan out I don't know if it's enough to make up for the size and tenor of the declines.

 

I think Bruce's investments are a bit YOLO, but if Fannie/Freddie work out, he'd get about 4x (or more?) on 20% position, so ~80% return. That would be enough to recompense for underperformance in 1, 3, 5, 10 year windows.

 

Not that I advice to invest in his funds, do your own DD and all that.

[winjitsu]

Is the Atwood position new? Looks enticing at 17% YTM.

[tede02]

So much of Bruce's reputation now rests with the outcome of SHLD and Fannie/Freddie.  If things work out, he'll be a genious.  If they don't, he'll be a complete moron.