"Of Mutual Interest"-Bruce Berkowitz, Portfolio Manager for Fairholme Fund
Tuesday, November 03, 2009PAUL KANGAS: Many experts say long-term performance is the most important factor in choosing a mutual fund. So in tonight's "Of Mutual Interest" segment, a fund that by most measures is number one in its category. It's the Fairholme Fund. This large cap value fund celebrates its tenth anniversary next month. Over that time, it has seen an annual return of 12.5 percent versus a 1.6 percent loss in the Standard & Poor's 500 Index. Bruce Berkowitz has managed Fairholme since its inception and he joins us now. And Bruce, welcome to NIGHTLY BUSINESS REPORT.
BRUCE BERKOWITZ, PORTFOLIO MANAGER, FAIRHOLME FUND: Thank you, Paul.
KANGAS: What is the secret to your decade of success?
BERKOWITZ: Well, Fairholme Fund, our trademark is we ignore the crowd. So we pay attention to what matters and what matters is cash. We count cash, ignore the crowd. Try and kill our most cherished ideas and we put our shareholders first, that's what it all about.
KANGAS: Almost 40 percent of your fund is just in five stocks, namely Pfizer, Sears Holdings, St. Joe, AmeriCredit and Forest Laboratories. Why so much faith in these companies?
BERKOWITZ: Well Fairholme Fund is a focused fund and we came to the conclusion that why put money in your 40th best idea if you could put more money in your first, second and third best idea. And of course with Obama care and the scare that's going on with our health care companies and pharmaceutical companies, all their market prices went over the proverbial cliff, which gave us a chance to buy cheap.
KANGAS: You also have a large position, happily, in Berkshire Hathaway which did very well today. Are you happy with today's deal and the acquisition of Burlington Northern?
BERKOWITZ: Great acquisition for Warren Buffett and Berkshire Hathaway, great fit with his insurance operations, the volatility in the insurance versus the stability of the railroad. Big acquisition, gets to put a lot of cash to work and he could put more and more cash over time as the economy grows and there's a switch towards the rails versus trucking.
KANGAS: Although 40 percent of your fund is invested in health care stocks, this sector hadn't been among the leaders this year and that's hurt your short-term performance. Are you still bullish on health care?
BERKOWITZ: Well, people are worried about a new health care policy and what the government is going to do. But at the end of the day our companies and health insurance are going to be the businesses that take the country forward with universal health care. After all, if companies such as Humana or Wellpoint don't do it, who is going to do it?
KANGAS: Unlike most mutual fund managers, you keep a big part of Fairholme Fund in cash, at 17 percent cash now. Are you hedging your bets on the current market?
BERKOWITZ: Since of the start of the Fairholme Fund, we've always had a double digit cash percentage and for us cash is a, you could call it financial valium. It gives us the wherewithal to take focused positions and of course when no one else has cash, cash becomes very valuable.
KANGAS: Bruce, do you personally own any of the stock issues we've discussed here?
BERKOWITZ: I own directly or indirectly every position that I discussion, every position that the shareholders of the fund own. After all, why would I possibly recommend certain positions to our shareholders if I'm not willing to put my own money and my family's money in?
KANGAS: OK. That makes good sense to me and faith in your own judgment, right?
BERKOWITZ: Absolutely.
KANGAS: OK. Bruce, thanks very much.
BERKOWITZ: My pleasure.
KANGAS: My guest, Bruce Berkowitz of the Fairholme Fund.
