The 2008 semi-annual report has been released by Fairholme. There is no better way to describe the champion fund than by their tagline “ignore the crowd”. As Wall St. drove oil stocks to sky high prices, Fairholme decides to invest in beaten up stocks in beaten up sectors such as pharma and housing.
Surprisingly Fairholme halved their position in Berkshire Hathaway citing:
We also halved our position in Berkshire Hathaway in the November-May period.
While we have the greatest respect for Chairman Warren Buffett, we made this
move because we cannot see how the company can replicate its past stellar performance
given its current size and the age of its key personnel. Berkshire should
still make good money for shareholders, but not enough to justify so large an investment
at prices sold
Obviously, Bruce Berkowitz feels Berkshire does not represent the opportunity a WellPoint (WLP) does. For WellPoint to double, its price would have to reach $90-100, something that can certainly be attained since in the past 52 weeks WellPoint has traded as high as $90. Now, for Berkshire to double it would have to have a stock price of $225,000.00. Possible? Yes, but it will take time considering Berkshire’s current market cap of 177 billion (GE has a market cap of 280 billion). For the 6 months ended 6/30/2008, Fairholme has outperformed the market by 6%, due to avoiding financials.Management had the following to say:
We have avoided most banks, brokerage firms, and other highly leveraged financial
companies given our inability to understand what they own and who they owe.
Furthermore, many of these companies are raising capital on terms that are highly
dilutive to existing shareholders.
It will be interesting if Burkowitz does indeed jump into financials. If memory serves me correct, Berkowitz mentioned in an interview he established a position in American Express (AXP), but I am not 100% sure. Finally, Berkowtiz ended the letter with something to say about current headlines:
We understand that the recent volatility in financial markets and in the Fund’s daily
price can be jolting for shareholders. However, we do not mind such vicissitudes,
but do mind permanent loss. Today, shareholders are facing scary headlines while
we believe the Fund is buying great businesses at better than reasonable prices, a
practice that in the past has produced an outstanding record. Since the Fund’s
inception in late December, 1999, it has gained about 240% while the S&P 500 is
essentially flat. We are proud of this performance, optimistic about our future, and
continue to invest in the professional staff and infrastructure needed to serve our
valued shareholders.
What else can I say? Berkowitz as Contrarian-Value Investor written all over him 
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