Hello Everybody,

For those of you that have been with me for years, you are likely aware that one of my favorite investment managers is Bruce Berkowitz of Fairholme Funds.  This is a guy with one of the best long-term track records of any investor and like us, he takes relatively concentrated positions on out of favor companies.  Berkowitz’s two biggest positions are AIG and Bank of America and his commentary is very good on them in this report.  You’ll note that Fairholme actually had a slightly negative year last year.  It has also been widely reported that Warren Buffett and his investment lieutenants underperformed the S&P 500 last year, as did most managers including Dan Loeb and David Einhorn.  While some might see one year’s underperformance as being worrisome, I can tell you that this is just the reality of investing.  In the late 1990’s many of the best managers couldn’t keep up with the young and aggressive technology fund investors for several years as price got more and more outrageous, but almost all of those technology funds got destroyed and are now mostly out of business, while the great value investors thrived even when the market was terrible in the early 2000’s.

In 2011, Berkowitz had his only materially bad year based on his ownership of value stocks.  For those of you that recall, I emailed repeatedly how he was right on his convictions and his fundamentals and the investors that were leaving him were making a huge mistake.  His funds under management were cut by over half and he received horrible media attention.  As I expected, he like TTCM, went on a massive tear in the next several years making a staggering amount of money for his investors. This is why on just about every quarterly commentary, I emphasize that I 100% guarantee that there will be quarters and years of underperformance from time to time.  It is absolutely inevitable, but the key is making the right investment decisions and letting them play out.  When the intrinsic values of our businesses are growing, yet the stocks are declining that is when you want to buy more aggressively!

Getting frustrated or emotional about short-term changes in stock prices and reacting to them is often what leads to disastrous results for market participants.  Right now we see the biggest disparity between prices of our stocks and intrinsic value since 2011.  Just as importantly, we are further along in the restructuring process where many of our financial stocks will be accelerating stock buybacks and dividends, which are likely to be a considerable catalyst.  I’d suggest reading the below report and we thank you for your trust and I’m extremely optimistic about these next few years with what we are currently holdin in stocks and our sold options.  Thank you very much!

Bruce Berkowitz Investment Commentary