Author Topic: Fairholme/Berkowitz  (Read 163406 times)

Gregmal

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Re: Fairholme/Berkowitz
« Reply #410 on: August 26, 2018, 12:16:34 PM »
So does anyone have any thoughts on what caused Berkowitz to go from outperforming for many years to the streak of underwhelming performance? I still cannot believe that his best ideas were Sears, St. Joe's, and Fannie Mae Freddie Mac preferreds.

We're all human and we all make mistakes - I think he had a costly anchor bias with Sears. Not sure about other factors.

I agree but I mean all three are investments that just jump out as common sense speculative, to at worst utterly terrible. Sears he'd been wrong for so long he had enough information to can it several years ago, before his performance really slipped. FNMA I get, but it's entirely speculative, will consume a ton of resources, and is way to big an allocation. And JOE is just such a no brainer bad investment I don't really know what to say there either. The fact that ALL THREE of these made/make up the bulk of his portfolio is crazy.


Cigarbutt

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Re: Fairholme/Berkowitz
« Reply #411 on: August 26, 2018, 02:07:04 PM »
-Intrinsic reasons: size, style drift
-Extrinsic reasons: in the "environment" of the last 8 years, features such as concentration, contrarian value, avoidance of technology stocks have performed relatively poorly

If the style drift itself is poor and if the "environment" works against you, it's a double whammy.
If you're consistently the opposite, you're Warren Buffett.
I guess we all try to find our space in between but this topic is just another example showing how hard it may be to outperform over the long term because it seemed, at some point, that Mr. Berkowitz could do no wrong.

Interesting that the contributors of the first page of this thread (at least in retrospect) described the seeds of disappointment.
« Last Edit: August 26, 2018, 02:09:19 PM by Cigarbutt »

Saluki

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Re: Fairholme/Berkowitz
« Reply #412 on: August 26, 2018, 07:53:15 PM »
So does anyone have any thoughts on what caused Berkowitz to go from outperforming for many years to the streak of underwhelming performance? I still cannot believe that his best ideas were Sears, St. Joe's, and Fannie Mae Freddie Mac preferreds.

We're all human and we all make mistakes - I think he had a costly anchor bias with Sears. Not sure about other factors.

I agree but I mean all three are investments that just jump out as common sense speculative, to at worst utterly terrible. Sears he'd been wrong for so long he had enough information to can it several years ago, before his performance really slipped. FNMA I get, but it's entirely speculative, will consume a ton of resources, and is way to big an allocation. And JOE is just such a no brainer bad investment I don't really know what to say there either. The fact that ALL THREE of these made/make up the bulk of his portfolio is crazy.

I'm not sure I agree.  I didn't buy SHLD because it's losing so much money and I don't think it's easy to turn around a retailer.  Ackman's a bright guy and he hired a bright guy to run JC Penney, but couldn't turn it around.  But if you're just looking at the  numbers, it looks interesting.

Just the back of the envelope:
$10 billion in losses over the years, that could give you , say a $3 billion in value if you use the NOL to shield future income.
$900 million for Craftsman
$400 million for Kenmore (lowball by Lampert)
???  million for DieHard
??? million for the captive insurance co
$2.4 billion in real estate (they have at least another Seritage in there)

the common is selling for ~$120mm now, and at the time Bruce was buying Lambert was a big holder too and controlled enough of the debt that he could decide when it would go bankrupt and block any attempt to ram through any restructuring that was unfavorable to the common.

He bought a house that was burning and  tried to get as much furniture out of it before it was too late.  The stuff inside was very valuable, it's just that they were using the funds to keep SHLD afloat and turn it around instead of selling off everything and moving on.

As for JOE, I own a lot of this and I think it's qualitatively different from companies like Tejon Ranch or Texas Pacific Land Trust.  But I go to florida at least once or twice a year, I own a condo down there and I'm generally bullish on the state as a whole, so take my view with a grain of salt.
If it's important, do it every day. If it's not important, don't do it at all.  -Dan Gable

Ballinvarosig Investors

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Re: Fairholme/Berkowitz
« Reply #413 on: August 27, 2018, 05:35:26 AM »
Excluding goodwill and intangibles, tangible book value at Sears is now negative $5.5b. Is there anywhere near that amount of value left in the company? Quite frankly I don't see how there possibly could be. In terms of non-property assets, there's maybe $1b there between Home Services, reinsurance biz, and Diehard/Kenmore. For the property assets, the last 10k told us that Sears owns just 300 stores, along with 10 distribution centers and their HQ with 800 of their stores being leased. If 235 properties were spun-out into Seritage with a valuation of $1.6b, what do the remaining property assets of Sears get? Even assuming that all the good ones haven't sold, we're looking at maybe $2b-2.5b, still leaving us with $2b in negative equity but ignoring the negative $2b in operating cash flow that this thing is bleeding.

If you want any further proof that Sears equity is a zero, you just need to look at Eddie Lampert's recent actions. The $500m offer to buy the home services/Kenmore business and other offer to buy some of the remaining real estate in a sale and leaseback clearly illustrates that he himself can only see the value of these assets realized outside of the dumpster fire that is Sears Holdings. When you combine the sales with the high interest rates that the company is paying on ESL held debt, it's clear what's happening here is an exercise in damage limitation for Eddie. He's going to torch the equity to save what he can from the bonds.

Let's see what happens, but my guess is that we are finally at end game here for Sears Holdings. There's $500m in quarterly operating losses to fund with no liquidity and with few assets that can be quickly sold. Quick ratio, Piotrski, and Altman Z scores for this company have went from danger to flashing red imminent risk of bankruptcy. If Home Services and Kenmore can be sold, that might buy them another 6 months. After that, it is surely only a matter of months until this has to be restructured. My guess is that they file for bankruptcy early next year. Between now and then, I think Eddie will be doing what he can to plug the pension gap and to protect the bonds. 

muscleman

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Re: Fairholme/Berkowitz
« Reply #414 on: September 08, 2018, 03:05:21 PM »
It is obvious that Bruce's strategy is flawed.
Here is my reasoning:
If a stock is so good and an immediate catalyst is coming to proper the stock much higher, then his large sized bet has to start making money right away. But after he take the large sized position in stocks like SHLD and others, they went down. That already means he is wrong. Then the logical thing to do is to immediately cut the position size to a normal bet size. But instead he increased bets on the way down, on the hope that market will soon realize the value in SHLD.

How is this different than gambling? After being wrong immediately, raise bets and "hope" that things will turn around. That's the exact psychology of a money losing gambler.

jmp8822

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Re: Fairholme/Berkowitz
« Reply #415 on: October 10, 2018, 03:57:34 PM »
Taking a wild guess, this hasn't been one of Bruce Berkowitz's favorite days.  JOE gets hit head-on by a hurricane and SHLD moving toward 'imminent' bankruptcy.