Fairholme/Berkowitz

[berkshiremystery]

Bruce Berkowitz of Fairholme Funds posted a new slide show on July 10th.

Enjoy!

 

Fairholme Stays The Course

2012-07-10

http://www.fairholmefunds.com/pdf/071012-FairholmeStaysTheCourse.pdf

 

[JRH]

Not sure when it was posted but the newest semi-annual letter is available:

 

http://fairholmefunds.com/sites/default/files/2012%20Semi-Annual%20Report%20Letter.pdf

 

No huge changes.  Nice table of prospective returns on the TARP warrants assuming book value appreciation and market/book convergence by warrant expiration.  His spreadsheet must look very similar to mine! :)

 

AIG is 38% of FAIRX.  Can't say that I'm quite that concentrated in AIG...

[berkshiremystery]

Some new comments on Berkowitz latest semi-annual report:

 

http://www.thestreet.com/story/11656720/1/fairholmes-berkowitz-cuts-aig-cit-stakes.html?puc=yahoo&cm_ven=YAHOO

[BargainValueHunter]

Fairholme 3rd Quarter moves...

 

http://community.nasdaq.com/News/2012-10/bruce-berkowitz-reduces-cit-and-aig-sticks-with-other-holdings-in-q3.aspx?storyid=185408#.UJAdwYVBEt4

 

"The facts are we bought companies after they turned. Their values, their book values, liquidate values, bad debt ratios, ROEs, ROAs, whatever you want to look at, were improving. The fundamentals, the facts. AIG, Bank of America, CIT - all of the financials that we've invested in"

[fareastwarriors]

http://wealthtrack.com/previous_10-12-2012.php

 

I know it was posted before elsewhere but I thought I post it here in case others haven't seen it yet.

 

For those interested, Berkowitz interview on Wealthtrack.

[JRH]

Fairholme Capital 13-F filed:

 

http://www.sec.gov/Archives/edgar/data/1056831/000105683112000004/submission111412.txt

 

GM and Lincoln National are added to the list of companies they are holding warrants on...

 

 

[BargainValueHunter]

Credit: One Family's Blog

 

http://static.cdn-seekingalpha.com/uploads/2012/11/15/106657-13529773055190554-One-Family-s-Blog_origin.jpg

[PlanMaestro]

Starting to make inroads in General Motors, Lincoln National, and The Hartford warrants… I wonder when he will start buying Zions warrants too.

 

What do you say MrB?

 

 

 

Fairholme Capital 13-F filed:

 

http://www.sec.gov/Archives/edgar/data/1056831/000105683112000004/submission111412.txt

 

GM and Lincoln National are added to the list of companies they are holding warrants on...

[Guest hellsten]

Credit: One Family's Blog

 

http://static.cdn-seekingalpha.com/uploads/2012/11/15/106657-13529773055190554-One-Family-s-Blog_origin.jpg

 

Thanks.

 

Anyone know if there's a logical explanation to why he has 86 million AIG and 24 million AIG-WT, and 102 million BAC and 10 million BAC-WTA? I guess that would explain which of the 4 he thinks are most attractive (or thought at the time of purchase).

 

If I remember correctly Bruce said in an interview that BAC is the stock people should own, however he owns ~3 times more of AIG than BAC.

[stahleyp]

Credit: One Family's Blog

 

Thanks.

 

Anyone know if there's a logical explanation to why he has 86 million AIG and 24 million AIG-WT, and 102 million BAC and 10 million BAC-WTA? I guess that would explain which of the 4 he thinks are most attractive (or thought at the time of purchase).

 

If I remember correctly Bruce said in an interview that BAC is the stock people should own, however he owns ~3 times more of AIG than BAC.

 

I think he got the AIGWS from his shares of AIG around Jan of last  year. He also stated a while back that BAC was his best idea, but I think due to the 40 investment act he couldn't go past 5% above cost (or something like that).

[PlanMaestro]

Do you guys remember Charlie Fernandez?

 

http://news.hedgefund.net/default.aspx?story=14353

[tng]

Anyone know if there's a logical explanation to why he has 86 million AIG and 24 million AIG-WT, and 102 million BAC and 10 million BAC-WTA? I guess that would explain which of the 4 he thinks are most attractive (or thought at the time of purchase).

 

If I remember correctly Bruce said in an interview that BAC is the stock people should own, however he owns ~3 times more of AIG than BAC.

 

I think as a mutual fund, there are restrictions how how much of his portfolio is allocated to stock in an individual broker/dealer (i.e. there would be a perverse incentive to use that broker/dealer instead of the one with the lowest cost to clients). I think I recall Berkowitz saying somewhere in an interview that he has the maximum legal position in BAC.

[vinod1]

Anyone know if there's a logical explanation to why he has 86 million AIG and 24 million AIG-WT, and 102 million BAC and 10 million BAC-WTA? I guess that would explain which of the 4 he thinks are most attractive (or thought at the time of purchase).

 

If I remember correctly Bruce said in an interview that BAC is the stock people should own, however he owns ~3 times more of AIG than BAC.

 

I think as a mutual fund, there are restrictions how how much of his portfolio is allocated to stock in an individual broker/dealer (i.e. there would be a perverse incentive to use that broker/dealer instead of the one with the lowest cost to clients). I think I recall Berkowitz saying somewhere in an interview that he has the maximum legal position in BAC.

 

A quick google search seems to indicate that the limit is about 5% on broker/dealers. So I am not seeing how he is at a maximum for BAC. I think he might be at a maximum for the warrants.

 

http://www.wilmerhale.com/files/Publication/caed18bf-4ba9-45c1-99ff-cf504407c591/Presentation/PublicationAttachment/1ef16c13-af40-4b19-a328-e866a8e9ecc0/2001_04_complianceissues.pdf

 

Vinod

[Guest rimm_never_sleeps]

I don't take at face value what money managers say in public. when they are asked what their #1 investment is, they often tell people what their #1 investment they wish to lighten up on is. It's obvious that Bruce like AIG better than BAC. And it stands to reason that if you are as bullish on a company as Bruce is on AIG that you would want to leverage your bet as much as is reasonable, for example buying long term warrants if they are available. AIG has less risk in it than BAC. that's probably why he likes it more.

[Guest hellsten]

don't take at face value what money managers say in public. when they are asked what their #1 investment is, they often tell people what their #1 investment they wish to lighten up on is. It's obvious that Bruce like AIG better than BAC. And it should be obvious that if you are as bullish on a company as Bruce is on AIG that you would want to leverage your bet as much as is reasonable. Hence the big warrant position. AIG has less risk than BAC. that's probably why he likes it more.

 

That's what I was thinking too. It's a money manager's job to sell their ideas to other investors. AFAIK, there's a similar issue with listening to what Warren Buffet says and does.

[MrB]

Starting to make inroads in General Motors, Lincoln National, and The Hartford warrants… I wonder when he will start buying Zions warrants too.

 

What do you say MrB?

 

 

 

Fairholme Capital 13-F filed:

 

http://www.sec.gov/Archives/edgar/data/1056831/000105683112000004/submission111412.txt

 

GM and Lincoln National are added to the list of companies they are holding warrants on...

 

I'm a bit behind on my homework on the fundamentals of those names, so don't have an opinion. I understand why it might be interesting though.

[ShahKhezri]

I don't take at face value what money managers say in public. when they are asked what their #1 investment is, they often tell people what their #1 investment they wish to lighten up on is. It's obvious that Bruce like AIG better than BAC. And it stands to reason that if you are as bullish on a company as Bruce is on AIG that you would want to leverage your bet as much as is reasonable, for example buying long term warrants if they are available. AIG has less risk in it than BAC. that's probably why he likes it more.

 

Interesting...I kind of disagree though, I think BAC is about 9-12 months ahead of AIG.  I think AIG still has to do spinoffs, cost cutting, etc. that BAC has already done or is implementing. 

[tng]

Anyone know if there's a logical explanation to why he has 86 million AIG and 24 million AIG-WT, and 102 million BAC and 10 million BAC-WTA? I guess that would explain which of the 4 he thinks are most attractive (or thought at the time of purchase).

 

If I remember correctly Bruce said in an interview that BAC is the stock people should own, however he owns ~3 times more of AIG than BAC.

 

I think as a mutual fund, there are restrictions how how much of his portfolio is allocated to stock in an individual broker/dealer (i.e. there would be a perverse incentive to use that broker/dealer instead of the one with the lowest cost to clients). I think I recall Berkowitz saying somewhere in an interview that he has the maximum legal position in BAC.

 

A quick google search seems to indicate that the limit is about 5% on broker/dealers. So I am not seeing how he is at a maximum for BAC. I think he might be at a maximum for the warrants.

 

http://www.wilmerhale.com/files/Publication/caed18bf-4ba9-45c1-99ff-cf504407c591/Presentation/PublicationAttachment/1ef16c13-af40-4b19-a328-e866a8e9ecc0/2001_04_complianceissues.pdf

 

Vinod

 

Hmm... unless I am misinterpreting, slide 27 says that mutual funds cannot buy 5% of a broker-dealer's shares (Berkowitz does not hit this limit, as BAC has about $100B market cap) and slide 28 says a fund cannot put more than 5% of its assets into a broker-dealer. It seems like Berkowitz has way more than 5% of his funds in BAC. Not sure how that works.

[Kraven]

Short interview with Berkowitz in Fortune.  Interesting article.  He briefly speaks about AIG, SHLD, BAC and MBI.  Says he's emailed Moynihan and told him to "settle!" and move on.

 

http://finance.fortune.cnn.com/2012/11/26/bruce-berkowitz-fairholme/?source=yahoo_quote

[Palantir]

This is the real weakness with value investing as an investment style from an investor perspective. You need to put outsize faith in your manager, be willing to stick with him when their returns are poor, and be ready to wait years before you can actually get any benefit out of your allocation. Not everyone's cup of tea.

[fareastwarriors]

Short interview with Berkowitz in Fortune.  Interesting article.  He briefly speaks about AIG, SHLD, BAC and MBI.  Says he's emailed Moynihan and told him to "settle!" and move on.

 

http://finance.fortune.cnn.com/2012/11/26/bruce-berkowitz-fairholme/?source=yahoo_quote

 

Conviction!

[treasurehunt]

Short interview with Berkowitz in Fortune.  Interesting article.  He briefly speaks about AIG, SHLD, BAC and MBI.  Says he's emailed Moynihan and told him to "settle!" and move on.

 

http://finance.fortune.cnn.com/2012/11/26/bruce-berkowitz-fairholme/?source=yahoo_quote

 

I like the last bit: "Are there other investments out there? Yes. Better than what's in the fund today? No."

 

Do you think settling with MBIA may have negative consequences for BofA beyond the billion or two in extra money they will have to hand over to MBIA? I wonder if BofA will have to revise up their loss estimates for a lot of other outstanding litigation and add to reserves significantly.

[Kraven]

Short interview with Berkowitz in Fortune.  Interesting article.  He briefly speaks about AIG, SHLD, BAC and MBI.  Says he's emailed Moynihan and told him to "settle!" and move on.

 

http://finance.fortune.cnn.com/2012/11/26/bruce-berkowitz-fairholme/?source=yahoo_quote

 

I like the last bit: "Are there other investments out there? Yes. Better than what's in the fund today? No."

 

Do you think settling with MBIA may have negative consequences for BofA beyond the billion or two in extra money they will have to hand over to MBIA? I wonder if BofA will have to revise up their loss estimates for a lot of other outstanding litigation and add to reserves significantly.

 

That was a good line indeed.

 

I personally don't think it will have much if any negative consequences for BAC.  I am long both BAC and MBI and think it's one of the rare cases where it's a win win for both.  It's not often that you find such a David and Goliath situation where a loss by one party is such a gain for the other, but doesn't really cause damage to itself and in fact may help by delivering some "clarity" (to the extent that ever actually exists). 

 

I'm not really the right person to be asking this question though in terms of the specifics of BAC's loss reserves.  I don't focus on the precise numbers.  While a billion here or there is real money, in terms of the "story" it really doesn't matter to me.  BAC is, in my view, in a relatively unique situation in that they just need to put these matters behind them.  Whether this matter or some other matter costs them a little more doesn't seem to matter.  The key to me is that the wagons have circled around the problems.  It's not like it was even a year or 2 ago when the problems seemed endless.  In general, they have their arms wrapped arond it and it's just a matter of executing.  That's a big change.  They seem to be on the path to clearing up their issues and moving to the next phase of things.

[Parsad]

Short interview with Berkowitz in Fortune.  Interesting article.  He briefly speaks about AIG, SHLD, BAC and MBI.  Says he's emailed Moynihan and told him to "settle!" and move on.

 

http://finance.fortune.cnn.com/2012/11/26/bruce-berkowitz-fairholme/?source=yahoo_quote

 

I like the last bit: "Are there other investments out there? Yes. Better than what's in the fund today? No."

 

Do you think settling with MBIA may have negative consequences for BofA beyond the billion or two in extra money they will have to hand over to MBIA? I wonder if BofA will have to revise up their loss estimates for a lot of other outstanding litigation and add to reserves significantly.

 

That was a good line indeed.

 

I personally don't think it will have much if any negative consequences for BAC.  I am long both BAC and MBI and think it's one of the rare cases where it's a win win for both.  It's not often that you find such a David and Goliath situation where a loss by one party is such a gain for the other, but doesn't really cause damage to itself and in fact may help by delivering some "clarity" (to the extent that ever actually exists). 

 

I'm not really the right person to be asking this question though in terms of the specifics of BAC's loss reserves.  I don't focus on the precise numbers.  While a billion here or there is real money, in terms of the "story" it really doesn't matter to me.  BAC is, in my view, in a relatively unique situation in that they just need to put these matters behind them.  Whether this matter or some other matter costs them a little more doesn't seem to matter.  The key to me is that the wagons have circled around the problems.  It's not like it was even a year or 2 ago when the problems seemed endless.  In general, they have their arms wrapped arond it and it's just a matter of executing.  That's a big change.  They seem to be on the path to clearing up their issues and moving to the next phase of things.

 

Yes, I agree I think it would be win-win.  For BAC it is a drop in the bucket and gets litigation behind them...more clarity for markets.  For MBIA it is survival...nuff said!  Cheers!

[Kraven]

Yes, I agree I think it would be win-win.  For BAC it is a drop in the bucket and gets litigation behind them...more clarity for markets.  For MBIA it is survival...nuff said!  Cheers!

 

All of this has been hashed over on the other threads, but I suspect we are nearing the endgame.  I've spent quite a bit of time thinking about this litigation.  The results of litigation can never be known in advance.  There is always the possibility of a result that one didn't predict.  That being said, I continue to maintain that BAC is getting some strange advice here or not following the advice they've been given. 

 

I don't see how they can expect to win this.  In the Article 78 matter they need to essentially show the insurance commissioner was crazy.  Tough to see that happening.  In the plenary matter, MBIA Corp clearly was not left insolvent.  Forgetting the results of the consent, they had sufficient funds to carry on their business at the time the transformation took place and have continued to survive.  There are no incipient claims outstanding that change that.  On top of that BAC needs to prove intent to defraud.  That's tough too.  So they need to prove intent when there's not even an insolvency.  I just don't see how this goes anywhere.  In the R&W matter, it doesn't matter what MBIA knew or didn't.  R&W are purely risk allocation mechanics.  The risk was shifted to BAC and they accepted it.  There is no sharing of it.  The rep is breached, game over.  Obviously given all the surrounding circumstances perhaps it isn't unfair to expect MBIA to incur some of the pain too, although I don't believe they have to.  It's just a timing issue.  I suspect they will have to take a haircut to get their dough sometime before everyone is a senior citizen.  With the consent though, to paraphrase Marv from Wall Street, it just made BAC's job that much harder.