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Chalk-up another one to Mr. Berkowitz.AIG to resume dividend payments; net profit rises. AIG (AIG) has declared its first dividend since the depths of the financial crisis and its $182B government bailout in a move that indicates the strength of the insurer's turnaround. AIG will pay $0.10 a share, while its board has also authorized a $1B stock buyback. The dividend announcement came after AIG's net profit rose to $2.73B in Q2 from $2.33B a year earlier, while EPS of $1.12 beat by $0.26. Shares were +6% pre-market.
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But would you really wanted to have had another Lehman?
Suspect that letting AIG fail would have been much, much worse than letting Lehman fail...and Lehman was pretty bad.
I do find it amusing that he is suing the government over Fannie/Freddie preferred. What happened: did the government decide it was going to act in its best interests?(which, in this particular case, was not in the interest of Fairholme and the other funds suing.)
Banks and financial institutions have failed throughout history. It's been bad, but hey, the sun continued to come up. Unfortunately, it's reality at times throughout history, but there's far less political and public tolerance now of system clearing than I think there probably used to be decades ago (and probably less tolerance now than there was a few years ago, even.) The endless discussions over whether or not letting the system clear vs propping everything up have been gone over quite a bit.
That said, okay, we bail out AIG and everyone else. Now what: too big to fail has gotten worse and we have financial institutions that still continue to rip off the populace - power price manipulation (http://online.wsj.com/article/SB10001424127887324809004578636401949683338.html), etc - and they are given a slap on the wrist because they would throw a tantrum and play the armageddon card if they were ever really gone after (and given the lobbying, no chance of that really happening.)
A couple of other minor issues: Berkowitz has acted like he and Fairholme shareholders "rode to the rescue" of AIG and other institutions. Lets be honest and not act all high and mighty: Fairholme bet on bailouts and it worked (for shareholders who had the patience, at least.)
The other issue that still makes me nuts is his praise of Lampert. Lampert may be a tremendous investor, but praising him up and down for running a retailer already becoming irrelevant further into the ground is ridiculous. Sears is apparently not getting interest in stores from other retailers and has started to turn stores into "disaster recovery centers" and data centers. I would love to see a '60's-era K-Mart turned into an adequate data center.
If one wants a retailer who hasn't done well and who owns an s-ton of land and has a business that's actually doing okay, look at Tesco (which Buffett bought when Tesco had a considerable downturn a year or so ago. Meanwhile, Tesco still pays a nearly 4% yield in the meantime. Tesco: Europe's Biggest Property Company (http://www.telegraph.co.uk/finance/migrationtemp/2807681/Tesco-Europes-biggest-property-company.html) Tesco in London has a market cap of about $29B and change. The value of their underlying property in Europe and elsewhere is likely North of that.
Again, I'm glad for you and other Fairholmers, but one, as Joe said - lets call these investments what they are/give credit and two, I still think Berkowitz should have GTFO of Sears a couple of years ago.
I found this 2009 post on Seeking Alpha pretty informative and amusing. It starts off with definition of AIG - Arrogance, Incompetence, and Greed.
http://seekingalpha.com/article/127611-a-handy-glossary-for-todays-economic-crisis
You can argue wrong / right kind of smartness. CAnnot argue results. However, the question to ask today is will AIG continue to be half of FAIRX portfolio or not. Will he trim? Who will buy his shares? Will it bring down AIG price? Will he have time to sell before bear market hits? Time will tell.
You get the idea- I doubled down and some months later wound up doing just fine, thanks. Brilliant insight? I doubt it. Just looking at the situation and playing the odds. I imagine Berkowitz pretty much did the same.
"He applied strict value criteria when he assessed stocks, and he adhered to the simple (but wise) rule of not investing in anything he couldn't understand. So Berkowitz was never tempted by the likes of AIG, Bear Stearns or Lehman Brothers, no matter how cheap their stocks had seemingly become.
A lot of well-known value investors fell on their faces the past year or two. Why did Fairholme hold up as well as it did?
"Maybe it's because I don't invest in things I can't understand....Or take American International Group. If you looked at an AIG annual report six or seven years ago, you saw one paragraph on derivatives. You look at an AIG annual report today and you see 15 pages on derivatives. I don't think company insiders fully understand what's going on, let alone outsiders. So if I don't understand something, I've learned to walk away."
http://www.kiplinger.com/article/investing/T041-C000-S002-a-bargain-hunter-stands-tall.html?page=1
So did he suddenly gain understanding to companies that by his own admittance had/have become tremendously complex entities in a fairly short period of time, believe that the companies were going to be bailed out, or a little of both?
Well he nailed that one, for sure. As to what he was thinking, or why and (especially) how, you'd have to ask him. But he might just take the fifth, and I don't mean Scotch, either...
Nygren recovered from Washington Mutual. Berkowitz if same thing had happened to AIG would not have IMHO.