market folly

Bruce Berkowitz of Fairholme Capital recently appeared on Consuelo Mack's WealthTrack to talk about his approach and his investments.


Berkowitz on Portfolio Concentration

Berkowitz said that, "The history of success, those who have succeeded well... they are focused on few activities.  He also went on to ask: "Why would you possibly want to buy your 10th best idea, if you can buy more of your best idea?"  He believes it makes sense to diversify more if you have less confidence in your picks though.

The Fairholme man doesn't think you need more than 10 stocks in a portfolio.  He said that you only need "a few good ideas" in a lifetime to do extremely well.  He likes to invest over the long-term and typically looks at investments with a five-year horizon.


Fairholme's Ideas

"Ignore the crowd" is Berkowitz's investing mantra.  At the time he made his AIG investment, he was definitely following that saying.  Nowadays, AIG is perhaps becoming more crowded as investors come around to the name and the government sells down its stake.  We've talked about how various hedge funds have been buying AIG this year.

We've posted up Berkowitz's AIG thesis as well as Glenn Tongue's presentation on AIG from the recent Value Investing Congress for more in-depth color on the name.

Berkowitz also has a large holding in Bank of America (BAC) as well, noting that many investors aren't touching it until "uncertainty" lifts.  Speaking about his financial purchases, he says he bought "systemically important companies at a fraction of their liquidating values."


Fairholme's Portfolio

Here's a look at Fairholme Fund's top three holdings as of the end of September:

1. AIG (AIG): 36.2% of fund
2. Sears Holdings (SHLD): 10.8%
3. Bank of America (BAC): 9.9%

Embedded below is the video of Berkowitz's interview:



For more on this investor, check out the following resources from Berkowitz himself:

- Berkowitz's MBIA investment thesis

- Berkowitz's Sears thesis

- Fairholme's presentation on Bank of America