Every quarter, many money managers have to disclose what they've bought and sold. Their latest moves can shine a bright light on smart stock picks.
Today let's look at investing giant Bruce Berkowitz. He's the founder of Fairholme Capital Management, which oversees three mutual funds of interest: the flagship Fairholme Fund (FAIRX) seeks long-term growth of capital, the Fairholme Focused Income Fund (FOCIX) seeks current income, and the Fairholme Allocation Fund (FAAFX) seeks long-term total return. The funds are all rather focused, each owning less than two dozen holdings, instead of the hundreds that many funds own.
The Fairholme fund has many admirers, and Berkowitz was named Morningstar's fund manager of the decade. But the fund has faltered a bit recently, having made some seemingly risky big bets. Berkowitz has some controversial holdings, such as Florida real estate company St. Joe (NYS: JOE) . The stock got a lift a few months ago on some executive turnover and speculation about a buyout, but it's still down for the year.
Berkowitz's portfolio featured about 20 entries and totaled $7.5 billion in value as of March 31. The top three holdings were AIG, representing a whopping 38% of the portfolio, Sears Holdings, with 15%, and Bank of America (NYS: BAC) , at 13%.
So what does Fairholme's latest quarterly 13-F filing tell us? Here are a few interesting details:
New holdings include auto insurer Mercury General (NYS: MCY) , which has a long dividend-paying history and a recent yield of 5.4%. In its latest quarter, net income jumped 26% over year-ago levels, mostly on investment gains, as premiums and operating income were basically flat.
Among holdings in which Fairholme increased its stake was global financial firm Jefferies Group (NYS: JEF) . The company has seen its shares drop nearly 40% over the past year, but in its favor, its CEO recently took a pay cut and several executives gave back bonuses -- not every Wall Street firm has behaved that way. It was also prescient enough to have shorted some Spanish investments in the recent past.
Fairholme reduced its stake in several companies, including Warren Buffett's Berkshire Hathaway (NYS: BRK.B) . It can be hard sometimes to find people who aren't bullish on Buffett, but in concentrated portfolios, a manager might sell a promising holding simply to buy into something seemingly more promising. My colleague Alex Planes offered some downsides to Berkshire earlier this year -- such as a somewhat lackluster performance in recent years. Others will point out that it's the long run that matters for many of us Foolish investors, and Berkshire does offer a lot to like. Fairholme also unloaded all of its stock in Goldman Sachs.
One interesting move Berkowitz made was to sell shares of Bank of America but boost his holdings of B of A warrants. Bank of America has been digesting some $200 billion of toxic assets it received when it bought Countrywide Financial, and it has been gradually turning itself around, selling off non-core assets and improving its overall health, despite continuing mortgage-related losses. My colleague Anand Chokkavelu thinks the stock may well double from recent levels in the not-too-distant future, and that might push warrant prices up even further.
We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing, and 13-F forms can be great places to find intriguing candidates for our portfolios.
While Fairholme is unloading some financial stocks, our analysts have found some compelling banking stocks. Click into our special free report, "The Stocks Only the Smartest Investors Are Buying," to meet a handful of impressive stocks.
At the time thisarticle was published Longtime Fool contributorSelena Maranjian, whom you canfollow on Twitter, owns shares of Fairholme, but she holds no other position in any company mentioned. Check out herholdings and a short bio. The Motley Fool owns shares of Berkshire Hathaway and Bank of America.Motley Fool newsletter serviceshave recommended buying shares of Goldman Sachs and Berkshire Hathaway. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.