Bruce Berkowitz Defends Having AIG Make Up 50% of His Fund
Bruce Berkowitz, founder and manager of the Fairholme Fund, was interviewed at length by CNBC’s David Faber this week. Berkowitz discussed many of his investments including those in the preferred shares of Fannie Mae and Freddie Mac, as well as Sears Holdings (SHLD) and his gargantuan position in AIG.
Regarding AIG, which makes up about half of the fund’s portfolio, Berkowitz stated, “When you look at today’s stock price … it’s still selling significantly below a liquidation value. So at some point, the stock market price of AIG will meet the book value of AIG, which I take as a proxy for the liquidation value.”
Berkowitz estimated AIG’s book value was between $57 and $60 a share, representing a premium of 18 to 24 percent from the current price. He sees AIG’s liquidation value doubling over the longer term and said, “that’s how one dollar becomes eight after a crisis.”
Regarding his investment in Sears, Berkowitz compared it to Simon Property Group (SPG) which he considers overvalued in relation to SHLD. He indicated that SHLD trades at one-tenth the valuation of SPG when considering the real estate holdings.
Berkowitz also believed that Bank of America (BAC) would eventually resemble Wells Fargo and provide investors with an unbelievable profit.
In October 2012, Berkowitz was interviewed by Consuelo Mack and gave his rationale for investing heavily in financials [link].