Quick summary of today's
call follows...
Classic Bruce Berkowitz.
Remains committed to investing in his best ideas.
Deeply undervalued stocks...far below assessed value.
Looks for large gaps between price and value.
Investing requires as much insight into psychology as it does accounting, along with patience and courage of conviction...until the crowd finally agrees.
Patience pays.
He has 100% of his savings invested in Fairholme funds and ideas. Employees continue to increase their investments in Fairholme funds.
He does not hedge. He does not short. "Not in our DNA." The closest thing to hedging is when he exits a position deemed at fair value. "Knowledge is our hedge."
Attempts to stay course under pressure, when he know he looks wrong...through inflows and outflows. Believes current shareholders know what to expect and are in it for the long term, five years or more.
He remains the sole asset allocator. He uses his staff of half a dozen analysts, along with outside experts to challenge his positions. His analysis staff continues to increase. He expects to remain leading Fairholme for life...at least the next 20 years.
His job is to find "fallen angels priced to fail," expecting Mr. Market to disagree with him at times.
He ties to focus on valuing positions. He tries to avoid predicting time-frames.
He believes risk is not volatility, which he recognizes some see as a proxy to risk.
Risk is potential for permanent loss of
capital, adjusting for inflation.
Volatility is needed to prosper.
Perception and reality meet when price equals value.
Acknowledging returns can be "lumpy, but above average" over long run, besting SP500 index.
Remains committed to AIG, BAC, Fannie & Freddie, and yes, Sears Holdings...even, Eddie Lampert, who he knows is no longer regarded very highly by public.
AIG and BAC will continue to get stronger as Great Recession troubles get behind them. Both will benefit in higher interest rate environment.
He wove an amazingly detailed trail of folks once inside or now inside Treasury that likely aided FHFA take all Fannie & Freddie profits via conservatorship, though now deny Treasury involvement. He believes both agencies remain vital to nation and future growth and have made more money for government than any in history. Government can't be above legal scrutiny, and he remains confident he will win suit. The case is in discovery stage and Fairholme has been mandated to not disclose any of its material findings to public because of potential harm to government.
On Sears, he believes the real estate remains a "once-in-a-lifetime" opportunity. He denied that he is so committed to Sears that he can't turn back now. He and every real estate expert he has brought into review continue to see extraordinary value. The REIT, which he says he did not have details on, will likely help reveal true value. He also stated that he thought the retail losses were starting to stem.
He exits positions only when they no longer rise to top of best ideas at Fairholme.
He intends to post call transcript on-line.
And, if anyone has further questions, or thinks "he is full of it," he welcomes emails and opportunity to answer.