Follow The Leader: Bruce Berkowitz

As investors, we are always looking for an edge, and there are many to be had. One of the greatest edges we have as small individual investors is that we don't have to disclose our positions in companies. This is not true for large institutional investors, who must report their holdings to the Securities and Exchange Commission quarterly. These filed reports known as 13-Fs are required for funds with more than $100 million under management. A look at some of these holdings allows us to follow in the footsteps of some of the best.

The Berkowitz edge
Bruce Berkowitz heads Fairholme Capital Management, which manages Fairholme Fund, which was the fastest-growing mutual fund in the country through the first two quarters of 2010. The Fairholme Fund has attracted more than $3 billion in 2010, which is made even more impressive by the fact that money is generally flowing out of stock mutual funds. Perhaps investors are attracted to Berkowitz's reputation as one of the world's best value investors, or his track record of 13% annual returns over the past decade.

Berkowitz loves making bets on strong companies that have fallen out of favor with investors for one reason or another. In the second quarter, Berkowitz began building a large position in BP (NYSE: BP  ) , as the company's shares have been pounded by the Gulf oil spill. Berkowitz found opportunity to add to his large financial positions, as the stocks became cheaper in the second quarter as well. Berkowitz also is not afraid to invest in smaller financial companies, as evidenced by Fairholme's large holdings in shares of Regions Financial (NYSE: RF  ) and MBIA (NYSE: MBI  ) . Let's look at some of Berkowitz's favorite stocks and do some of our own research to see if they would fit in our own portfolio.

American International Group (NYSE: AIG  )
AIG is Fairholme Capital's largest holding, and Berkowitz has increased this position further in the second quarter, giving Fairholme a stake of more than 24% in the company. This makes Fairholme the largest nongovernment shareholder in the company. AIG has sold many of its nontraditional assets over the past year and looks poised to return to its more traditional insurance roots. Perhaps Berkowitz believes this will allow the company to unlock its true value.

Sears Holdings (Nasdaq: SHLD  )
Berkowitz decreased his position size slightly in this retail and real estate play in the second quarter. This does not necessarily mean he has a less favorable view of the stock, as it still represents more than 8% of Fairholme's portfolio. However, Berkowitz has put some of this capital to work in his favorite financial names and the fund's primary energy play, BP.

Citigroup (NYSE: C  )
Berkowitz added almost 10 million additional shares of Citigroup during the second quarter, betting on strength in the stock as the United States Treasury comes closer to unwinding its ownership of the once-beleaguered financial giant.

Goldman Sachs (NYSE: GS  )
Berkowitz recently started a new position in Goldman Sachs, making a large initial bet in the company by allocating more than 7% of Fairholme's capital into shares of the investment banking giant. A recent settlement with the SEC stemming from fraud charges against the firm has given shares a reprieve from heavy selling pressure over the first half of the year. Berkowitz isn't the only fund manager or business leader that has become bullish on Goldman Sachs. John Paulson recently added the holding to his fund, and Bill Gates bought 500,000 shares for the Gates Foundation.

Bank of America (NYSE: BAC  )
Shares of Bank of America recently hit a 52-week low, but Berkowitz sees value and has been buying aggressively on the way down. In the recent quarter, Berkowitz increased Fairholme's holdings in the firm by more than 37%, adding nearly 15 million shares.

How often do you follow gurus' stock picks? Do you agree with Berkowitz's top picks? Let us know in the comment box below.

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Andrew Bond owns no shares in the companies listed. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 17, 2010, at 8:44 PM, rookie2009 wrote:

    Didn't want you to feel no love, this is my 1st, 1st comment. Great read. I own one of these as a spec, but what caught my eye was the low to middling caps ratings, which I hold in high esteem. This would make Mr. Berkowitz a contrarian to our foolish community as a whole. Of course he has a huge bat, along with a huge bag of baseballs, and I suspect that huge bag of baseballs helped him get to where he is. I don't own BP, I was waiting for under twenty to pounce, and that's why I will always be The Rookie. Cheers!!!

  • Report this Comment On August 18, 2010, at 12:29 AM, teebeecan wrote:

    If I had the "guts" I would do just as he is doing. However, IF the US heads back into a big recession (very possible) then he will take a huge hammering!

  • Report this Comment On August 19, 2010, at 6:05 PM, fridayeyes wrote:

    I hope Mr. Berkowitz is right as I own AIG, BAC, BP and C. I see the recent market choppiness as a buying opportunity, but I've already bought all I can afford to.

  • Report this Comment On August 19, 2010, at 6:14 PM, goalie37 wrote:

    Mr Berkowitz is truly a contrarian...that is if the definition of a contrarian is "someone I completely disagree with."

  • Report this Comment On August 19, 2010, at 6:54 PM, fridayeyes wrote:

    I hope Mr. Berkowitz is right as I own AIG, BAC, BP and C. I see the recent market choppiness as a buying opportunity, but I've already bought all I can afford to.

  • Report this Comment On August 19, 2010, at 6:55 PM, fridayeyes wrote:

    Ooops. Apologies for duplicate post. It was a board hang hiccup.

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