Tracking Bruce Berkowitz's Fairholme Portfolio - Q3 2012 Update

by: John Vincent

This article is part of a series that provides an ongoing analysis of the changes made to Fairholme's U.S. stock portfolio on a quarterly basis. It is based on Fairholme's regulatory 13F Form filed on 11/14/2012. See our Tracking Bruce Berkowitz's Fairholme Fund Holdings article for an idea on how his holdings have progressed over the years and our previous update highlighting the fund's moves during Q2 2012.

Bruce Berkowitz's U.S. stock portfolio size increased marginally this quarter from $6.87B to almost $7B. It had decreased by around 11% last quarter compared to an increase of 27% in Q1 2012. The number of positions in the portfolio went up from 19 to 21 - two very small positions were added and none was eliminated this quarter. Although the portfolio has 21 positions, the largest five positions account for over 80% of the overall U.S. long portfolio value. The portfolio continues to be very concentrated with the largest position American International Group (NYSE:AIG) representing a jaw-dropping ~45% of the portfolio.

New stakes:

Lincoln National (NYSE:LNC) WTS 10.715 Strike & General Motors (NYSE:GM) WTS 18.33 Strike: These are minute stakes which together account for less than 0.1% of the U.S. long portfolio. As such, the stake establishment does not signify a clear bias. Although these positions are very small, Berkowitz is known to be bullish on similar warrants - he holds significant positions in warrants of businesses including American International Group , Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), JP Morgan (NYSE:JPM), and Hartford Financial Services (NYSE:HIG). The Lincoln National WTS currently trades at around $15. The General Motors WTS trades at around $9.25. Both the warrants have an expiry date of July 10, 2019.

Stake Disposals:


Stake Increases:

Bank of America and BAC WTS 13.30 Strike: BAC is Berkowitz's third largest position behind AIG and Sears Holding (NASDAQ:SHLD). The position was purchased in 2010 and has since been kept steady although minor adjustments have been made every quarter. This quarter, the stakes in both the common shares and the warrants were increased marginally. BAC traded between $7.04 and $9.55 during the quarter. It currently trades at around $9. Berkowitz continues to be very bullish on BAC, although he is sitting on losses.

Berkshire Hathaway (NYSE:BRK.A) and (NYSE:BRK.B): Berkshire Hathaway is a long-term holding that was built aggressively in the 2009-2011 timeframe. The stake was since reduced by over 80% as of the last quarter. This quarter, the stake was increased marginally at prices between $82.54 and $89.54 through the purchase of the BRK.B shares. The stock currently trades at $85.51 and accounts for around 1% of the portfolio. At the peak in Q2 2011, the position was at about 10% of the portfolio. The minor stake increase this quarter does not signify a clear bias.

Leucadia National (NYSE:LUK): LUK is a very long-term holding that was built-up over several years to an almost 6% stake. This quarter, the position was marginally increased at prices between $20.56 and $23.91. The stock currently trades at $20.70. Berkowitz is very bullish on LUK. For investor attempting to follow Berkowitz, LUK is a good option to consider.

Sears Holdings Corp: SHLD is a huge 13.4% stake that was established in 2007. The stake has fluctuated over the years. This quarter, it was increased marginally at prices between $48.36 and $62. The stock currently trades at $58.42. The current stock price is far below Berkowitz's average purchase price. The large position size and the stake increase signify a strong bullish bias. For investors attempting to follow Berkowitz, SHLD is a very good option to consider.

Wells Fargo , Wells Fargo WTS 34.01 Strike, Hartford Financial Group WTS 9.649 Strike and JP Morgan WTS 42.42 Strike: These are very small stakes that were increased marginally this quarter. Wells Fargo Warrant (expiry 10/28/2018, strike price $34.01) is a ~0.2% position while the other two positions are even smaller. The small position sizes and the minor stake increases do not signify any clear bias. WFC trades currently at $31.43 while the warrants change hands at around $8.75. The HIG and JPM warrants trade at $11.87 and $10.05, respectively.

Stake Decreases:

CIT Group (NYSE:CIT): CIT Group is a large 7% of the portfolio stake that was first purchased in 2009. The position was increased by over 30% in 2010 and had since been held steady. During the last quarter, the position was reduced by around 25% at prices between $32.57 and $41.60. This quarter, the stake has been further reduced by another ~25% at prices between $34.20 and $41.38. The stock currently trades at $36.12. The over 50% stake reduction over a couple of consecutive quarters signifies a clear bearish bias.

Jefferies Group (JEF): JEF is a 0.5% position first purchased in Q2 2011. The stake was doubled in Q2 2012 at prices between $13.64 and $19.49 and was marginally increased last quarter at prices between $12.16 and $19.05. This quarter, there was an about turn as the stake was reduced by almost 40% at prices between $11.77 and $16.03. The stock popped recently following a merger announcement with Leucadia National .

American International Group , AIG WTS 45 Strike, Citigroup (NYSE:C), MBIA Inc. (NYSE:MBI), Orchard Supply Hardware (OSH), and St Joe Companies (NYSE:JOE): These positions were only marginally reduced this quarter and so do not signify a clear bias.

The very small position in Assured Guaranty Ltd (NYSE:AGO) saw no movement this quarter.

The spreadsheet below highlights changes to Fairholme's U.S. stock holdings in Q3 2012:

Disclosure: I am long AIG, BAC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.