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I’ve long been a fan of Bruce Berkowitz. And for years it has been hard not to be. Berkowitz has repeatedly taken concentrated positions in companies that Mr. Market hates and patiently waited for those stocks to rise. For twenty years Berkowitz has looked like a shrewd investor who takes advantage of Mr. Market’s emotional instability.

And then came 2011. Berkowitz entered the year a legend, and he leaves the year looking like he has lost his marbles.

At the mid-point of 2011 I wrote this article suggesting that investors shouldn’t be pulling their money away from Berkowitz, they should be adding to their Fairholme Fund holdings. At the time I wrote the article, the Fairholme Fund was down 8.97% on the year. I hope readers didn’t listen to me, because since then things have only gotten worse for Fairholme. Through the end of November Fairholme was down 30% on the year, and things haven’t gotten any better since then.

This year has been awful for Berkowitz, obviously. What I am trying to figure out is whether he was just very early in entering these positions, or if he is simply wrong. I thought it would be interesting to look at how his largest positions as of December 31, 2010, faired in 2011.

AIG (AIG)

  • Dollar value of holdings at Dec 31, 2010 - $2.55 billion
  • Stock price Dec 31, 2010 - $40.35
  • Stock price Dec 28, 2011 - $22.97
  • Decrease – 43%

Bank of America (BAC)

  • Dollar value of holdings at Dec 31, 2010 - $1.22 billion
  • Stock price Dec 31, 2010 - $13.66
  • Stock price Dec 28, 2011 - $5.29
  • Decrease – 61%

Citigroup (C)

  • Dollar value of holdings at Dec 31, 2010 - $1.12 billion
  • Stock price Dec 31, 2010 - $48.16
  • Stock price Dec 28, 2011 - $26.90
  • Decrease – 44%

Sears Holdings (SHLD)

  • Dollar value of holdings at Dec 31, 2010 - $1.1 billion
  • Stock price Dec 31, 2010 - $75.37
  • Stock price Dec 28, 2011 - $33.33
  • Decrease – 56%

Morgan Stanley (MS)

  • Dollar value of holdings at Dec 31, 2010 - $1.04 billion
  • Stock price Dec 31, 2010 - $29.19
  • Stock price Dec 28, 2011 - $15.29
  • Decrease – 47%

Berkshire Hathaway (BRK.A)

  • Dollar value of holdings at Dec 31, 2010 - $1.03 billion
  • Stock price Dec 31, 2010 - $122,425
  • Stock price Dec 28, 2011 - $114,800
  • Decrease – 6%

Goldman Sachs (GS)

  • Dollar value of holdings at Dec 31, 2010 - $990 million
  • Stock price Dec 31, 2010 - $161.74
  • Stock price Dec 28, 2011 - $90.12
  • Decrease – 44%

CIT Group (CIT)

  • Dollar value of holdings at Dec 31, 2010 - $940 million
  • Stock price Dec 31, 2010 - $47.69
  • Stock price Dec 28, 2011 - $34.65
  • Decrease – 27%

Regions Financial (RF)

  • Dollar value of holdings at Dec 31, 2010 - $870 million
  • Stock price Dec 31, 2010 - $7.04
  • Stock price Dec 28, 2011 - $4.24
  • Decrease – 40%

St. Joe (JOE)

  • Dollar value of holdings at Dec 31, 2010 - $855 million
  • Stock price Dec 31, 2010 - $27.41
  • Stock price Dec 28, 2011 - $14.99
  • Decrease – 45%

Those are the ten largest holdings in Fairholme’s December 31, 2010 SEC filing, with the exception of GGP, which was sold.

The declines are so bad it borders on the absurd when one considers the stock market is basically flat over this period of time.

The average decrease of Fairholme’s ten largest holdings is 41%. The best performer is Berkshire, which is down 6%. The worst performer is Bank of America, which is down 61%. Eight of the ten are down more than 40%.

Here is my prediction: Take out Berkshire, and a portfolio that includes only the remaining nine stocks will rank in the top 1% of mutual funds over the next five years.There are multi-baggers amongst these companies. I’m just not sure which ones. I’m also not sure that I have the ability to properly analyze the majority of these companies.

I guess I’m simply being contrarian for the sake of being contrarian. Oh, and still believing Berkowitz hasn’t gone completely off the deep end.

Source: The Fairholme Fund's Year To Forget Will Reverse Course In 2012