Bruce Berkowitz Portfolio

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HFA Staff
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Today we will discuss the portfolio and investment career of one of the legends of the investing world, Bruce Berkowitz. Before founding Fairholme Capital Management in 1997, Bruce Berkowitz worked in Merrill Lynch, with Lehman Brothers as a senior portfolio manager, and in Smith Barney as a managing director. Bruce Berkowitz's portfolio stocks are valued at $1.5 billion and are divided among 7 holdings.

Berkowitz’s portfolio is heavily concentrated in his biggest holding, St Joe Co. (JOE). Other holdings include a stake in Enterprise Product Partners LP (EPD), Berkshire Hathaway Class B (NASDAQ: BRK.B), and W. R. Berkley Corp (WRB).

His work as a hedge fund manager was always on top of the class. Berkowitz received in 2010 an award as a domestic stock fund manager of the decade by Morningstar. In 2013, Institutional Investor Magazine named him the Money Manager of the Year. Berkowitz’s fund generated a return of 942% in a period between 1999 and 2024 significantly outperforming the S&P 500 index. We will go through his current portfolio, and what is his strategy that brought him these returns.

Top Holdings

St Joe Company (NYSE: JOE) with 85.45% of the portfolio

This has been Berkowitz’s top holding for quite some time. He also joined the board of directors in 2021. Berkowitz currently owns 22.7 million shares, and that comes after a three-year-long trimming of the holding. He sold over 3 million shares at prices between $35 and $55. We must take into account that the majority of the shares he bought for under $25. He invested in this holding a total of $460 while its value rose to $1.27 billion. This investment generated a gain of 176%. 

Enterprise Product Partners LP (NYSE: EPD) with 10.2% of the portfolio

Enterprise Product Partners is one of the largest private companies providing natural gas, oil, and petrochemicals in the United States. Berkowitz started investing in it back in 2020. Since then he has been increasing his position and acquired a total of 5.21 million stocks for $127 million. Its value slightly increased to $151 million, generating a modest gain of 19%.

Berkshire Hathaway Inc Class B (NASDAQ: BRK.B) with 3.4% of the portfolio

Warren Buffett’s holding company is one of Berkowitz's favorite investments. He now owns 123 thousand Class B stocks, and he has been trading them for more than a decade. In Q4 2023 he significantly increased his position by buying 72 thousand shares at $350. He in total invested in this holding $28.4 million, while its present value is $50.6 million. This holding brought solid gains of 78%.

W. R. Berkley Corp (NYSE: WRB) with 0.74% of the portfolio

WRB is one of the newest holdings in Fairholme Capital Management's portfolio. They bought 131 thousand stocks in Q2 2023 and sold 5 thousand stocks later in the year. The stake cost $7.47 million, while its value grew to $11 million, generating a return of 47%.

Bank OZK (NASDAQ: OZK) with 0.15% of the portfolio

Fairholme Funds started investing in this holding in Q3 2023 when they bought 148 thousand shares at $40.50. In Q4 they trimmed this position for 96.3 thousand shares sold at $41.21. Their investment went from $2.07 million to $2.24 million with a return of 8.1%.

Berkshire Hathaway Inc Class A (NASDAQ: BRK.A) with 0.04% of the portfolio

Fairholme Capital Management currently owns 1 Class A BRK.A stock. They bought 6 stocks in 2013 at $148,802 while their current value rose to $274,034. The value of the holding went from $274 thousand to $630 thousand making a gain of 130%.

Apple Inc (NASDAQ: AAPL) with 0.03% of the portfolio

Fairholme Fund bought 14 thousand Apple shares in 2020 and 2021 at $109 and $129. They trimmed the holding in 2022 and 2023 selling at $168 and $183. They now own 2.4 thousand stocks, and this investment generated a gain of 38% so far.

Key Sector

Berkowitz’s biggest holding St Joe Co. is a real estate company based in Florida, thus his portfolio is heavily concentrated in the real estate sector. He also has stakes in the finance and industrial sectors. This is his current sector breakdown:

  1. Real Estate with 85.4% of the portfolio valued at $1.27 billion
  2. Industrials with 10.2% of the portfolio valued at $151 million
  3. Finance with 4.3% of the portfolio valued at $64.4 million.

Bruce Berkowitz Investment Approach

The cornerstone of Bruce Berkowitz’s investment approach that he is using as a chief investment officer at Fairholme is based on deep value investing. He chooses assets that have a very low current value, which can in time turn around and provide solid returns.

He is very picky about companies he will invest in, and the first test a company must pass is a chance to withstand tough times. He avoids making predictions on behalf of the company but rather chooses to place a bet where he sees good management teams and steady cash flow.

Also, he points out that almost all investors at some moment will hit a streak of luck. He advises all to take advantage of that streak and get greedy. That usually happens when the majority of the market is in trouble and you manage to do something different that brings results.

To be able to remain calm in difficult times, Berkowitz advises to always have cash on hand. It can save a lot of nerves, but it also can provide much-needed capital in case of a sudden great investment possibility.

What we can see from his portfolio is that he doesn’t diversify it. He prefers to keep his choices few. That comes from his need to understand where he is investing in. He likes to know the company, how it generates capital, and what is its competitive landscape. Also, by concentrating his portfolio he can keep track of all his investments.

Throughout his career, he has shown strong contrarian views. He is not afraid to go against the crowd and invest in a sector or company everyone avoids. That way he can find cheap stocks that have potential. By buying cheap he is also always testing his patience, and waiting for the company to progress, and the market to recognize its real value. 

Bruce Berkowitz Performance Analysis

Historical Portfolio Performance

Since the inception of Fairholme in 1999 it generated total returns of 942%. When we take the S&P 500 413% returns in the same frame, we can see that these results are astonishing. 

In the last 10 years, there were some magnificent years like 2023 (46.72%), 2020 (46.9%), 2019 (32.06%), and 2016 (25.68%). But, the fund did underperform the index in 2021 (6.87%), 2018 (-23.17%), 2017 (-5.96%), and 2015 (-11.48%).

Notable Success

Bet in the Bank of America Corp and American International Group in 2011

Almost all big investors avoided these stocks because it was a biased opinion that these companies were doomed to fail. Berkowitz went against the herd and those two investments amongst others generated a gain of $8.8 billion in 2013. 

Notable Failure

A bet on AIG that went wrong

In 2011 he placed a solid bet on an AIG giant. But, when the dust settled, his fund was left short of $435 million.

Risk Management

Although Bruce Berkowitz's high-concentration approach is deemed as risky he looks at it from a different angle. By investing in a handful of companies he is showing trust and belief in them. He conducts thorough research about every company and is willing to invest only if he thinks it is a fundamentally good company. By further diversification, he is avoiding falling into the trap of buying into bad companies that can only bring losses.

As a founder of his fund, he is willing to commit a solid amount of his capital to the fund. That way he is showing that he has an utmost belief in his approach, and investors can rest assured that his and their goals are aligned.

He explains investment risk as a permanent capital loss. He is not looking at short-term volatility that markets often are susceptible to but focuses on the chance of losing his investment. His approach is aimed at preserving the capital rather than combating short-term price fluctuations. 

Outlook and Future of A Bruce Berkowitz Portfolio

When we look at the past performance of his fund it is stellar. They are not only outperforming the S&P 500 index but also the majority of the hedge funds. His strategy to invest in cheap companies, not because they are bad, but rather from external factors like major crises, brought him the respect and wealth of the investing world.

But, in recent years, his deep value investing approach was not as successful as in the past. The fund did outperform in certain years, but it also yielded bad results in others. This may show the flaws in his current approach, but he is not showing any signs that he is willing to change it. He is still deeply rooted in the real estate sector, but since it has been at the center of discussions lately, we will have to wait and see what will come as a result. 

FAQ

How Much is Bruce Berkowitz's Net Worth?

Bruce Berkowitz’s net worth is currently estimated at $16.7 billion.

Final Thoughts

Bruce Berkowitz’s long and successful career that shifted from a consultant to an investor shows his deep understanding of the market and trends. His willingness to go against the herd and invest in the riskier sectors undernotes his determination and goals that he is always willing to fight for.

Berkowitz’s concentrated portfolio may look like a huge risk for someone looking from a distance. But he has shown in so many situations that he knows what he is doing. He prefers to invest in a handful of analyzed and trusted companies, and reap benefits in the long run, than to constantly battle large portfolios with high volatility. 2023 was very good for him and his investors, but 2024 will for sure be another year that will test everybody's nerves.

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The post above is drafted by the collaboration of the Hedge Fund Alpha Team.