Bruce Berkowitz on Sears Holdings

| About: Sears Holdings (SHLD)

Bruce Berkowitz of the Fairholme fund discusses his rational for owning Sears Holdings (NASDAQ:SHLD) in a recent U.S. News and World Report article title 'A Portfolio Warren Buffett Would Love'. Although I'm focusing on the Sears part of the article, I recommend clicking the link to read the full article.

One of your largest holdings, Sears, has seen its stock price fall by about half over the past year. Do you think Chairman Edward Lampert can turn things around?

I think that he's going to do it. And it's very reminiscent of what happened with Warren Buffett and Berkshire Hathaway in the early days. If you play back the tape, Warren Buffett bought into Berkshire Hathaway, a textile mill, and he took many years to try and turn it around. He had deep respect for the employees; he really gave it his best shot. And then when he realized it wouldn't work, he then started to redeploy the assets and the free cash that was coming out of this industry that was destined to die. And that's how Berkshire Hathaway started.

Sears is the same situation. Sears has a great real-estate portfolio, and people are behaving as if it can only be used as retail space. And they have brands; some of them are quite good. The company has over $50 billion of revenue and is making money, and people are acting as if it's a company that's bleeding to death. People aren't looking at it in the right way. They are measuring it based as a retailer, and they are measuring it based on short-term net income profitability. But there are many more dimensions to Sears. Real estate can have a higher and best use. Today's anchor to a mall can be tomorrow's multipurpose, multiuse building where you can have office buildings, retail, and residential spaces.

Of course, the best thing that could happen would be that he turns around Sears and Kmart and it's a grand-slam home run. The worst thing that happens is he gives it his best shot and starts to find higher and better uses for all of the assets, from land to trademarks to online. If you can see three or four different ways where you can make an awful lot of money with a guy who has a record of making an awful lot of money, it's not such a bad thing.