The value investor Bruce Berkowitz has had tremendous success as the manager and founder of the Fairholme Fund, which has delivered cumulative returns of over 268% as of January 31st, 2010.
In the spirit of great mutual fund managers like Berkshire Hathaway’s Warren Buffett, and Donald Yacktman of Yacktman funds, Bruce Berkowitz has developed a system of finding companies that yield high returns.
To analyze the reasons the Fairholme Fund has become such a talked about phenomenon, there are several points to consider and look at a bit closer:
-Berkowitz focuses his bets on the greatest possible players. His latest include Berkshire Hathaway and Canadian National Resources.
-As much as anything, he looks for companies with lots of cash flow, or the ability to generate it.
-Berkowitz prefers owner-minded managers who have a solid record of successes.
-He loves to hold up to 15% of his portfolio in cash to take advantage of any investment that fits his criteria.
-He is the consummate imitator of great ideas.
Because of the stringent criteria, only a small percentage of what the market has to offer is suitable for the Fairholme Fund to invest in, and as a result the portfolio is lean, but strong.
Berkowitz’s current holding of Berkshire Hathaway, though they can change frequently, include up to 10% A shares. Bruce Berkowitz tends to hold on to his shares for a period of time, and then sell them off, only to buy them back again at a later date. This has led some to speculate that he is using Berkshire shares as cash, much like Mohnish Pabrai, another investor closely followed because of his ability to find value in the market.
Regardless of the choices Bruce Berkowitz makes with his holdings, so long as he continues to find success, his moves will be closely followed, if not completely understood.
