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"There are less ways to cheat on a balance sheet than an income statement," says Bruce...

"There are less ways to cheat on a balance sheet than an income statement," says Bruce Berkowitz, explaining why he focuses on the one rather than the other (and why he'll probably never be a buyer of auto stocks). In this great 35-minute chat from late last year, he again makes his case for AIG and BAC - "it's the 90s all over again" - and SHLD - selling for the liquidation value of its merchandise; the brands and the real estate are free.
Comments (33)
  • Abigsoxfan
    , contributor
    Comments (606) | Send Message
     
    What Berkowitz fails to understand about insurance companies is that the easiest way to cheat on a balance sheet is to grossly under-reserve losses (a huge liability). The $10B + AIG had to add to loss reserves to the balance sheet in 2009 & 2010 is pretty damning evidence to that fact. Hopefully Bruce figures that out. $10B+ in under-reserving, wow!
    28 Apr 2013, 09:36 AM Reply Like
  • Tricky
    , contributor
    Comments (1583) | Send Message
     
    I too found it a bit odd that someone who says it's harder to cheat on balance sheets likes a sector (fin services) where it's easiest to do so?
    28 Apr 2013, 10:18 AM Reply Like
  • Snoopy1
    , contributor
    Comments (1115) | Send Message
     
    Yeah, you can't be fooled looking at balance sheets! Wasn't Berkowitz the one that got killed with banks in 2008?
    28 Apr 2013, 12:52 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8669) | Send Message
     
    Berkowitz's 2012 return...35.18%

     

    S&P 500 2012 return...16%

     

    Berkowitz's cumulative return since the start of his Fairholme fund?

     

    306%

     

    The S&P 500 over the same time span?

     

    24%

     

    Yeah, right...Berkowitz doesn't know what he's doing.
    28 Apr 2013, 05:18 PM Reply Like
  • MexCom
    , contributor
    Comments (3053) | Send Message
     
    BAC's balance sheet is audited not only by the required public accounting firm by the NYSE and SEC but the whole bank regulation community including the Department of the Treasury and the IRS. They are constantly badgered by the public scrutinizing it including the Congressional banking committees. The amounts being carried for assets are very conservative estimates of values. I believe this to be true when I see that businesses that are sold are turned into cash at a higher value than what they were carried. Marketable securities are at quoted values for the end date of the period reported. Liabilities have been previously overstated and some have been recently reduced from what I believe is IRS scrutiny seeing that this could have been a tax dodge. Real estate assets are being carried at foreclosure values and are now being sold at higher prices in a rising market for homes and commercial property. One only has to look at how well the REITs are doing in the market. Amounts being set aside for litigation claims are not understated becuase the amount of the settlement where many are settled out of court are fixed. Its only a distribution of money agreed to already that if any change is to be made it could be reduced on the balance sheet if all the claimants do not come forward to take it.
    29 Apr 2013, 06:08 AM Reply Like
  • JamesJoyce
    , contributor
    Comments (78) | Send Message
     
    Yea but following a precipitous decline the prior year.
    29 Apr 2013, 08:57 AM Reply Like
  • Abigsoxfan
    , contributor
    Comments (606) | Send Message
     
    Always looking in the rearview mirror aren't you deep? Past performance is no guarantee of future results. Ever look into the fundamentals of the companies you invest in? Do you understand fundamentals? How about the group of Chicago folks who followed their leaders out the door at AIG? I hear noises that a bunch of Boston people will be out the door soon. How do you figure that will impact Berowitz's holdings in AIG? Just wondering?
    7 May 2013, 07:45 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8669) | Send Message
     
    I notice that in my rearview mirror AIG was a $20 stock around the time I bought many thousands of shares.

     

    Now it is in the mid $40s.

     

    I know how to invest.

     

    Others may wish to learn so they don't seem like amateurs.
    8 May 2013, 09:05 AM Reply Like
  • PR Conservative
    , contributor
    Comments (38) | Send Message
     
    Financial Services companies can use their balance sheet to hide liabilities, there are also off balance sheet vehicles to do so.

     

    One can't just rely on a single financial statement to get a conclusion. One has to look at all, BS, IS, CF, SE.....etc.
    28 Apr 2013, 10:37 AM Reply Like
  • Uncle Pie
    , contributor
    Comments (3118) | Send Message
     
    Would you dine in a restaurant which cannot spell the items on its menu correctly? Would you invest with a manager who butchers the English language? "less ways to cheat on a balance sheet"? That should be FEWER ways to cheat on a balance sheet. You use "fewer" when you are describing something that can be counted, such as "ways" to cheat on a balance sheet. You use "less" when you are describing something that cannot be counted, like "less fraud". Some may consider this nitpicking, buy who wants to sound like an ignoramus?
    28 Apr 2013, 10:46 AM Reply Like
  • wyostocks
    , contributor
    Comments (8229) | Send Message
     
    Uncle Pie
    Take English grammar lessons from an English Professor and take financial advice from a financial professional.
    28 Apr 2013, 11:13 AM Reply Like
  • bbro
    , contributor
    Comments (9844) | Send Message
     
    Pie

     

    Do you have a link to this Bad Gremmer Bad Treder correlation ???
    28 Apr 2013, 11:34 AM Reply Like
  • Uncle Pie
    , contributor
    Comments (3118) | Send Message
     
    You just might make a better impression if you can speak English without butchering the language. They say you never get a second chance to make a first impression.

     

    Furthermore, there are plenty of ways to cheat on your balance sheet. The big banks were counting tax loss carry forwards as part of their "tangible book". I don't know if they still can do this. When the Federal Reserve marks their trillion dollar bond portfolio to market, they call unrealized losses "deferred assets". Don't try this at home!
    28 Apr 2013, 11:53 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8669) | Send Message
     
    Berkowitz's cumulative return since the start of his Fairholme fund?

     

    306%

     

    The S&P 500 over the same time span?

     

    24%
    28 Apr 2013, 05:20 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8669) | Send Message
     
    60 Month Rolling Returns:

     

    Berkowitz (since the start of the Fairholme Fund)...71.22%

     

    S&P 500 over the same time period...16.01%
    28 Apr 2013, 05:25 PM Reply Like
  • ComputerBlue
    , contributor
    Comments (808) | Send Message
     
    I'd take Bruce B's financial advice on AIG and BAC. You would have done very well thus far.
    28 Apr 2013, 11:25 AM Reply Like
  • Uncle Pie
    , contributor
    Comments (3118) | Send Message
     
    AIG's reverse split shares have to get to $1100 for people who bought it before 2008 to break even. Heckuva company! BAC just has to quadruple from here for those folks to get even. I'll just say no to these dogs!
    28 Apr 2013, 11:58 AM Reply Like
  • ComputerBlue
    , contributor
    Comments (808) | Send Message
     
    Ive made plenty of dollars buying BAC @ 6 and AIG @ 29...I'm only concerned about my entries and exits. Both will be even higher eoy.
    28 Apr 2013, 01:47 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8669) | Send Message
     
    Wow. And here I thought Berkowitz was NOT invested in AIG at the pre-crisis high.

     

    You learn something new everyday I guess.
    28 Apr 2013, 05:26 PM Reply Like
  • Nitin B. Sharma
    , contributor
    Comments (165) | Send Message
     
    First time I hear a fund manager not even mentioning cash flows. Ha.
    28 Apr 2013, 12:00 PM Reply Like
  • mikeg999
    , contributor
    Comments (69) | Send Message
     
    Hard to find comfort in Bruce's insights. He is the fund manager that took and continues to take concentrated bets in financial service investments, real estate (JOE) among others and then defends his high beta selections with the research conducted by relatives with whom he no longer has relations.

     

    Bruce is another example of an overcompensated fund manager who is paid regardless of his risk adjusted returns.
    28 Apr 2013, 01:14 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8669) | Send Message
     
    Berkowitz's 2012 return...35.18%

     

    S&P 500 2012 return...16%
    28 Apr 2013, 05:35 PM Reply Like
  • rube123
    , contributor
    Comments (1361) | Send Message
     
    FAIRX on 04/23/2010 was at $36.17......02/11/2011 was at $36.45.......today its at $35.08, am I looking at the wrong fund?
    28 Apr 2013, 08:07 PM Reply Like
  • Snoopy1
    , contributor
    Comments (1115) | Send Message
     
    No, you're looking at the right fund (FAIRX) but I think you forgot to account for dividends/distributions.

     

    Morningstar 5 year annual returns (including distributions):
    S&P500 4.83%
    FAIRX 4.39%

     

    Morningstar gives FAIRX a below average 2 star rating.
    29 Apr 2013, 12:08 AM Reply Like
  • ComputerBlue
    , contributor
    Comments (808) | Send Message
     
    I dont agree with all of his choices. Mainly CIT and JOE. I presume everyone here does better than him and others all while managing a fund of his size? From Morningstar: At the helm of Fairholme since its inception in December 1999, Bruce Berkowitz has seen the fund grow from a few million dollars in assets to more than $10 billion today. Fairholme earned a 13.2 percent 10-year annualized total return through Dec. 31, 2009, beating the S&P 500 by 14 percentage point. He's had bad years like anyone. Lost 32% in 2011 but is back up considerably since then.
    28 Apr 2013, 01:57 PM Reply Like
  • Chancer
    , contributor
    Comments (2898) | Send Message
     
    Berkowitz likes to publicly pump his investments. Does it constantly. It was Berkowitz idea to set up a public meeting for Moynihan to pump BAC, because Berkowitz was so heaviy invested in it. He is just trying to drive up stock prices for his investments.
    28 Apr 2013, 02:02 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8669) | Send Message
     
    Yeah, Berkowitz "pumps his investments" so often that Seeking Alpha had to go back to an interview from last year to post today this item on two of his holdings.
    28 Apr 2013, 05:37 PM Reply Like
  • Ghosts of Kariela
    , contributor
    Comments (152) | Send Message
     
    He's a fund manager, talking his book helps get his investors returns. I'll admit it, his price targets on some of his stocks, ($SHLD anyone?) are a bit over optimistic to say the least.
    28 Apr 2013, 10:27 PM Reply Like
  • ComputerBlue
    , contributor
    Comments (808) | Send Message
     
    No doubt about it. No worse than the other slime though. Icahn is probably the worst. As a holder of AIG and BAC, I hope he pumps them up beyond "guesstimated" book value. I dont have to love a company to invest in them.
    28 Apr 2013, 02:11 PM Reply Like
  • garyjustice
    , contributor
    Comments (3) | Send Message
     
    I don't get his distaste for the auto stocks. Ford is a buy right here.
    Does the debt scare him ?
    28 Apr 2013, 08:32 PM Reply Like
  • SA Editor Stephen Alpher
    , contributor
    Comments (546) | Send Message
     
    Nice couple of sessions for Berkowitz - AIG, BAC, MBI all soaring ...
    6 May 2013, 12:36 PM Reply Like
  • ComputerBlue
    , contributor
    Comments (808) | Send Message
     
    "Bruce is another example of an overcompensated fund manager who is paid regardless of his risk adjusted returns."
    6 May 2013, 12:38 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8669) | Send Message
     
    I wonder how much money has been lost by AIG detractors and shorts over the last year or so.

     

    Must be painful for them...

     

    Oh, well...
    8 May 2013, 09:05 AM Reply Like
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