Fairholme/Berkowitz

[VersaillesinNY]

CNBC 30 min interview with Bruce Berkowitz - Sept 23, 2016

Key investor Bruce Berkowitz explains why he backs Trump right now...

http://www.cnbc.com/2016/09/23/2016-election-investor-bruce-berkowitz-explains-why-he-backs-trump-right-now.html

[BargainValueHunter]

Bruce must be feeling the (redemption) heat.

 

He has another interview this weekend, this time with Consuelo Mack (again):

 

http://www.valuewalk.com/2016/09/bruce-berkowitz-fannie-mae-freddie/

 

By the way...~20% of the portfolio in Freddie and Fannie and another big slug in St. Joe? St. Joe!!

 

Wow.

[NormR]

WealthTrack:

[ValueMaven]

Down 50% in SHLD??  Sitting at ~$12, even with all of the spinoffs, its much more likely he is down -70% or more in the name...decent interview actually

[BargainValueHunter]

M* warns on serious liquidity risk at Fairholme:

 

http://news.morningstar.com/articlenet/article.aspx?id=772817

 

The largest holding as of May 2016 was St. Joe (JOE) at 13.8% of assets. Fairholme owns 31% of the shares. Morningstar estimates it would take more than 100 days to sell that position without affecting the share price. Plus, Berkowitz is the chairman, further complicating matters. The days-trading estimates for the fund's next-largest positions, Fannie Mae and Freddie Mac preferreds (combined 21.4% of assets), are also greater than 100 days.

 

Not good when your fund is losing $70 million every month...

[scorpioncapital]

Interesting liquidation strategy he had - he sold his winners and kept his losers :)

[Jurgis]

Interesting liquidation strategy he had - he sold his winners and kept his losers :)

 

This is somewhat common for couple of reasons:

- Loss aversion bias.

- Related to above the belief that losers will outperform the winners going forward. That's not completely wrong/biased, but somewhat.

- Liquidity of winners is way higher than liquidity of most losers.

 

It does push the fund into liquidity risk though. Especially if investors read M* and rush for exits.

[Guest wellmont]

i have been wondering why bruce has gone on offensive in recent days with two interviews. now I see that it is related to morningstar. m* is the absolute bible for RIAs and self directed investors. when they say something their readers usually act. this could really damage the fund. this is very good example of the soros reflexivity theory playing out in real time.  i think some sharks are starting to smell blood in the water. he has bet his career on sears and gses.  if gses go to zero hard to see how even his most ardent supporters stay with him.

[Ballinvarosig Investors]

This has shades of Bob Goldfarb and Sequoia all over again, selling down good positions to keep bad ones. Are Sears, Fannie/Freddie, and St Joe really so good to sell Berkshire and AIG in order to keep? Personally, I just can't see it, if these positions were so good, they would have worked out by now. That's the one thing I have learned in investing - the good ideas are the one that don't need years to come good. So I have no idea why he is engaging in this strategy of doubling down on losers, especially considering the investment vehicle that he runs (a mutual fund that is likely to have a lot of unsophisticated investors). If he is getting redemption's, then he really has no one to blame but himself. One thing that disturbs me about Berkowitz is just how disingenuous (whether it's accident or not) he's being about Fairholme's current position. He keeps talking about how this is like the time in 1991 when he had 35% of his assets in Wells Fargo. I have to call BS on this. Firstly, I don't think that Wells Fargo ever fell by 50% during the real estate crash of 1990. Looking at the share price over the period it's more like a 35% decline. Even at that, within a few months of the trough, the share price just went up and up smashing new highs with each month. Operationally, the real estate crash really only caused Wells to wobble for a few quarters. Just look at that 1990/1991 annual reports and you'll see that what Wells experienced was really only a hiccup that the market over-reacted to (but rapidly corrected).

 

I have to wonder are there any vulture hedge funds out there looking at Berkowitz's very public book and desperate liquidity position in order to engineer some sort of attack on his fund.

[Picasso]

You know the problem with this site now is that everyone shares theirs opinion about basically every finance topic with out rigorous analysis....I'm not saying that Sears wil or will not go bankrupt but I haven't seen anyone on here apply values to the properties they own. In fact I came across seritage property lease and appraisal information and have actively not share it except to a few.

 

 

If you guys are so good then why aren't you running your own hedge fund or mutual fund? To me it like your not  that good. What's going so wrong in your lives that you don't run a $5B hedge fund?

 

My bet is youre small fry.

 

???

[Picasso]

What are you talking about? Sears has lost something like $9 billion over the past several years. They're torching whatever asset values Berkowitz identified years ago. He was right about the real estate asset values but dead wrong about the operating business.  It doesn't take a $20 billion master of the universe fund manager to realize this has been a disaster of an investment for all parties involved.

[Valuebo]

Are Sears, Fannie/Freddie, and St Joe really so good to sell Berkshire and AIG in order to keep?

 

Probably not but if he just held BRK and AIG, the best he could hope for in the next few years was 10-15%/year and he'd never regain his superstar status. He probably feels like he has no other option and has to go all-in on them in order to prove himself. If he sells his losers, he is basically already saying he was wrong and who is going to buy and hold his fund when he holds a few large caps that aren't that far of fair value? Many of his investors were lured in precisely because he aims for big concentrated positions in contrarian names. At least now he has a shot (in his mind, I don't have an opinion other than that they aren't 1 foot hurdles!). As someone said, they aren't exactly positions that one just jumps in and out of.

 

I have to wonder are there any vulture hedge funds out there looking at Berkowitz's very public book and desperate liquidity position in order to engineer some sort of attack on his fund.

 

You're right. If the GSE's go to zero they can short the rest and launch an easy attack. Looks to me like he is fucked - at least for a while - if one of the three goes kaboom before one of the others turn around. Great strategy!

[tng]

There's obviously something wrong when Berkowitz was so bullish on BAC in the past and when it dropped down to $12 a couple of months ago he didn't add any. Fundamentally, BAC has increased in intrinsic value since he first brought it (several years of earnings on the balance sheet, buybacks and dividends in play now) while Sears has eroded. So if there is a chance to get back into a big winner at a huge discount (a round trip back up to $18 would be a 50% gain), why not allocate some of the portfolio into it? Due to redemptions, Berkowitz is actually making a bigger and bigger percentage bet to stuff like Sears (which is losing value every day) when some of his previous high conviction investments suddenly got really cheap again (while they gain value every day). It looks really dumb to me.

 

Berkowitz is just stuck in some not very liquid positions and his career is on the line, so he is stuck going all-in. Logically, an investor that is not constrained like that would not allocate his portfolio that way, assuming he has the same theses as Berkowitz on Sears, Freddie/Fannie, St. Joe and BAC.

[CorpRaider]

Yeah, what's wrong is when you send shareholders a massive phantom income hit and throw in a little vomit inducing return number they are probably about as likely to leave capital in your funds as they would be if you kicked them in the junk. 

 

One really could see him imploding like Marty Whitman's fund did.  He really needs to just take over St. Joe and run it as his vehicle.  If he only charges $200K per year, I would be enthused....but his art collecting may slow.

[BargainValueHunter]

Yeah, what's wrong is when you send shareholders a massive phantom income hit and throw in a little vomit inducing return number they are probably about as likely to leave capital in your funds as they would be if you kicked them in the junk. 

 

One really could see him imploding like Marty Whitman's fund did.  He really needs to just take over St. Joe and run it as his vehicle.  If he only charges $200K per year, I would be enthused....but his art collecting may slow.

 

"I think that [Lampert] is going to do it. And it's very reminiscent of what happened with Warren Buffett and Berkshire Hathaway in the early days. If you play back the tape, Warren Buffett bought into Berkshire Hathaway, a textile mill, and he took many years to try and turn it around. He had deep respect for the employees; he really gave it his best shot. And then when he realized it wouldn't work, he then started to redeploy the assets and the free cash that was coming out of this industry that was destined to die. And that's how Berkshire Hathaway started.

 

Sears is the same situation. Sears has a great real-estate portfolio, and people are behaving as if it can only be used as retail space. And they have brands; some of them are quite good. The company has over $50 billion of revenue and is making money, and people are acting as if it's a company that's bleeding to death. People aren't looking at it in the right way. They are measuring it based as a retailer, and they are measuring it based on short-term net income profitability. But there are many more dimensions to Sears. Real estate can have a higher and best use. Today's anchor to a mall can be tomorrow's multipurpose, multiuse building where you can have office buildings, retail, and residential spaces."

 

Of course, the best thing that could happen would be that he turns around Sears and Kmart and it's a grand-slam home run. The worst thing that happens is he gives it his best shot and starts to find higher and better uses for all of the assets, from land to trademarks to online. If you can see three or four different ways where you can make an awful lot of money with a guy who has a record of making an awful lot of money, it's not such a bad thing."

 

-Bruce Berkowitz, 2008

 

(8 short years ago and right before one of the greatest times to deploy capital in modern history...yes, rear view mirror and all but still...)

[TwoCitiesCapital]

Yeah, what's wrong is when you send shareholders a massive phantom income hit and throw in a little vomit inducing return number they are probably about as likely to leave capital in your funds as they would be if you kicked them in the junk. 

 

One really could see him imploding like Marty Whitman's fund did.  He really needs to just take over St. Joe and run it as his vehicle.  If he only charges $200K per year, I would be enthused....but his art collecting may slow.

 

"I think that [Lampert] is going to do it. And it's very reminiscent of what happened with Warren Buffett and Berkshire Hathaway in the early days. If you play back the tape, Warren Buffett bought into Berkshire Hathaway, a textile mill, and he took many years to try and turn it around. He had deep respect for the employees; he really gave it his best shot. And then when he realized it wouldn't work, he then started to redeploy the assets and the free cash that was coming out of this industry that was destined to die. And that's how Berkshire Hathaway started.

 

Sears is the same situation. Sears has a great real-estate portfolio, and people are behaving as if it can only be used as retail space. And they have brands; some of them are quite good. The company has over $50 billion of revenue and is making money, and people are acting as if it's a company that's bleeding to death. People aren't looking at it in the right way. They are measuring it based as a retailer, and they are measuring it based on short-term net income profitability. But there are many more dimensions to Sears. Real estate can have a higher and best use. Today's anchor to a mall can be tomorrow's multipurpose, multiuse building where you can have office buildings, retail, and residential spaces."

 

Of course, the best thing that could happen would be that he turns around Sears and Kmart and it's a grand-slam home run. The worst thing that happens is he gives it his best shot and starts to find higher and better uses for all of the assets, from land to trademarks to online. If you can see three or four different ways where you can make an awful lot of money with a guy who has a record of making an awful lot of money, it's not such a bad thing."

 

-Bruce Berkowitz, 2008

 

(8 short years ago and right before one of the greatest times to deploy capital in modern history...yes, rear view mirror and all but still...)

 

So the real question is - does Bruce's comments from 8 years ago hold any water going forward? If I'm not mistaken, it's only been the last 2-3 years where the bulks of real estate sales, store closures, spin-offs, and rights offerings occurred.

 

I think we can all agree Bruce was early 8 years ago. Does that mean ultimately he's wrong or does his original thesis hold water going forward now that it appears the company has committed itself to monetizing/unlocking these assets where from 2008-2013 that wasn't necessarily the case?

[CorpRaider]

I was talking about Bruce not Eddie.  But I was definitely watching for some evidence of that thesis but I don't/haven't see it playing out.  Some would probably focus on the "allocation" into the sears logistics or auto or whatever, but really to me that just seems to be a way to try and use the assets in the (crappy) business to survive similar to Buffett putting in new capital equipment after having a few decent textile quarters.  I suppose he has also tried to license the brands with very limited effect, but seems to me he's planning to plow it back into shop your way and ever ready tires and new store formats and ugh.  Was going to go back and look out of curiosity but likely someone on here recalls off the cuff; how long did Buffett f around with the textiles before diverting some cash to a better business? 4 years?

[TwoCitiesCapital]

I was talking about Bruce not Eddie.  But I was definitely watching for some evidence of that thesis but I don't/haven't see it playing out.  Some would probably focus on the "allocation" into the sears logistics or auto or whatever, but really to me that just seems to be a way to try and use the assets in the (crappy) business to survive similar to Buffett putting in new capital equipment after having a few decent textile quarters.  I suppose he has also tried to license the brands with very limited effect, but seems to me he's planning to plow it back into shop your way and ever ready tires and new store formats and ugh.  Was going to go back and look out of curiosity but likely someone on here recalls off the cuff; how long did Buffett f around with the textiles before diverting some cash to a better business? 4 years?

 

Sure. I was more posing the question and not really pointing out anything you said. I think that Bruce's thesis makes a lot more sense now than when people were originally talking about it. I didn't buy Sears until 2013/2014 after they had begun announcing sales of stores at an appreciable pace and were spinning off Land's End. At that point, I saw them moving assets and investing in new growth initiatives while leaving the legacy unprofitable legacy business behind (closing unprofitable stores en masse) and Bruce's comment above seemed to hold a lot of water.

 

I sold because the rights offerings left a bad taste in my mouth. It seemed like Lampert was monetizing shareholders just as much as the assets and I wasn't comfortable increasing my capital commitment, at that price, to get the same assets I already owned even if it seemed like a lucrative deal at the time.

 

Who knows - I'm just watching. Haven't quite decided if Bruce's comments hold any more water now than 8 years ago, but they seem to. I'd still be in the name had Lampert not demanded I increase my capital commitment at every turn to keep the assets I already owned :/

 

Maybe I'm better for it...

 

 

 

 

 

[CorpRaider]

Yeah, sorry I was more clarifying for the guy who quoted me and then discussed Berkowitz' theory of Lampert's development of SHLD as a vehicle.  Thought we might have crossed wires there.  I'm sure there's not a lot of love for JOE but at least they aren't getting Amazoned with a legacy pension hanging over the head. 

 

I was reading John M.'s Manual of Ideas book the other night (finally) and he's got some stuff in there about how (listed/tradable) rights offerings are the fairest way to raise additional capital with respect to the existing shareholders, which made me think of SHLD.  I guess if you have to plow more capital in, it is better than the alternatives.  Their moves into the debt structure give me great pause when considering the equity.  Also, find the lending/participation from Gates' entity/foundation interesting.  I think I'm just going to wait and get some SRG ~$35 when people freak out about rates or trump or whatever.

[dcollon]

Fairholme Schedules Public Conference Call

Bruce Berkowitz to Present Portfolio Outlook and Address Investor Questions

 

October 20, 2016 05:14 PM Eastern Daylight Time

MIAMI--(BUSINESS WIRE)--Fairholme Capital Management (“Fairholme”) today announced that Bruce Berkowitz, the firm’s Founder and Chief Investment Officer, will host a one-hour conference call on November 18 at 11:00 AM EST, with the objective of giving investors the opportunity to participate in the discussion of portfolio outlook and recent performance.

 

The format of this call will mirror that of February’s public call: Mr. Berkowitz will provide commentary on investments while responding to comments and questions submitted in advance by the public. Fairholme will accept questions and/or comments until Friday, November 11 at 5:00 PM EST. All topics for discussion may be submitted electronically to [email protected]. Please note that submissions will remain anonymous. Participants are encouraged to review recent commentary and topical postings by visiting www.FairholmeFunds.com.

 

Dial-in details for the call are provided below:

 

 

U.S. and Canada UK Toll-Free UK Local Toll International Toll Conference ID

Toll-Free Dial-In Dial-In Dial-In Dial-In

(888) 267-5949 0800 028 8438 0203 107 0289 +1 (864) 568-3268 92870820

[dcollon]

Here is the transcript for the call the other day.  Thanks to gurufocus

 

http://www.gurufocus.com/news/459820/bruce-berkowitzs-fairholme-capital-management-conference-call-transcript

 

 

[Jurgis]

Looks like saved by Trump this year.

 

Maybe next year too if Fannie/Freddie work out.

[BargainValueHunter]

Looks like saved by Trump this year.

 

Maybe next year too if Fannie/Freddie work out.

Berkowitz's returns are so "Zig-Zag" from the rest of the market with his loony portfolio concentration. He was actually doing pretty well vs. SPY since early February but since Trump won his holdings have been moonshots. Even JOE has been strong.

 

Yeah, a few weeks means nothing in the long run but it is fascinating to watch. Seems every few years he badly, badly lags the market or absolutely crushes it.

 

And FOCIX is a VERY good hybrid income fund...maybe Berkowitz should stick to distressed debt?

 

For the diehards who are still in his funds maybe they can use the outsized gains over the last few weeks to finally escape without too big of a loss.

[BargainValueHunter]

https://www.thestreet.com/story/14063324/1/why-these-titans-of-wall-street-may-be-tripping-over-themselves-to-buy-shares-of-dying-sears.html

 

Fairholme now owns 26.9% of Sears' outstanding shares, which are currently valued at $325 million. Berkowitz has taken a bath on his investment in Sears. Fairholme has been a Sears investor for more than a decade, having initially reported buying stock in the retailer during the third quarter of 2005, according to Bloomberg data. Fairholme's average cost on Sears, according to Bloomberg data, is $42.05 a share or 73% below current levels.

 

So to get a decent overall return on his many, many, many years of managing this position he has to make up for being underwater THEN beat the S&P 500 over the time period that he has chosen Sears Holdings over the SPY ETF.

[Guest]

Fairlme's average cost is 73% below current levels (so around $3 or $4)? They've made some good money on SHLD then (or the author is a little unclear). :P