Bruce Berkowitz and Whtiney Tilson Are Back on Top in 2012


Last year was hnot a pleasant one for Bruce Berkowitz or him mutual fund, Fairholme (MUTF:FAIRX). The media even got involved and bashed the fund manager. Even the Wall Street Journal advised to sell the fund in an article back on November 6th. Kiplinger also chimed in and bashed Berkowitz saying that “…hubris is such a dangerous trait in a fund manager”. Ouch that is some harsh words from the financial magazine.

We too were highly critical of Berkowitz. The reason being not his investments persay, but how the fund was run. Berkowitz is a better investor than we are. We think that his high concentration in financials is dangerous however, which remains our main criticism.

The unflattering words continued to come out from just about every respected financial news source out there but Berkowitz has made all of them eat their words because the fund was able to regain its ground and is currently back on top in the mutual fund department. The fund is up a remarkable 30% so far in 2012. That is usually what funds get at the end of the year, if they have had a great year. Berkowitz made 30% in the first quarter alone. Currently, he averages 9% annual return over the past ten years.

He is not out of the woods yet though. In the first two months of the year, investors pulled out $570 million, while investors pulled out $6.8 billion last year. This made Berkowitz see him assets fall from $21 billion to $7 billion.

If he is up so high for the year, why are investors continuing to pull out money? For one thing, investors are beginning to feel uneasy about a possible correction in the near future and in the process pulling out money to preserve gains. Next, Fairholme’s top holdings are the hated AIG (AIG), Sears Holdings (SHLD), Bank of America Corp (NYSE:BAC) and Citigroup (C). All of these stocks were absolutely hated last year and quite frankly they are risky holdings if we are going into a correction. I mean these holdings were the reason he got filleted last year. Yet these stocks have benefitted from the rally so far this year and have netted Berkowitz and his fund some much needed cash.

The fund manager has continuously said that he will not be changing his portfolio which makes a lot of investors and people in the media uneasy. Look at John Paulson for instance. He was in similar stocks such as Bank of America last year and he was clobbered, in fact he hasn’t even recovered yet, and sold Bank of America, right before its big run-up.

Whitney Tilson of T2 Partners on the other hand is having a fantastic year. His fund for March alone was up 10.6%. We are more confident with Tilson’s investments, since they are much more diversified. Additionally, he has some good short names in his fund (the author holds no short positions,  in T2’s hedge fund), which we think could be highly profitable. The fund is up 23.6% for the year, and if things continue going Tilson’s way, it could be a very happy Chris-Mas! The same is true with Bruce Berkowitz.

The main idea here is that Berkowitz has defied the media and investors by his fund’s return of 30% so far this year. However, his holdings are creating a lot of unrest on the Street, but we will see how he performs from here. Look to Europe for answers on that; especially the Iberian peninsula.

Source: Fortune CNN (Written by Scott Cendrowski)


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