Has Bruce Berkowitz been exposed to kryptonite? His money-management firm, Fairholme Capital, is on a losing streak few could have anticipated. After all, this is a fund that handily outperformed the S&P 500 in 10 out of 11 years through 2010. That streak ended with a loud bang in 2011, as his fund lost a stunning 32%, even as the S&P 500 rose 2%.
Berkowitz was surely glad to turn the page on 2011, but 2012 has been horrific as well, especially over the past three months. Take a look at these seven stocks, all of which are owned by Berkowitz, and how they have performed in the past three months.
For savvy investors, such a lousy performance brings opportunity. We get the chance to dig deeply into these washed-out stocks, seeking out the stocks that now offer even more compelling value.
A bad sector bet
Much of the recent underperformance can be attributed to Berkowitz's aggressive positioning with financial services stocks. He anticipated a big sector rally in 2011 and 2012, but the never-ending crisis in Greece has led to deep pain for banks of all stripes. You already know I'm a big fan of Citigroup (NYSE: C), and I think Berkowitz will be vindicated with this pick during the next few years, as we move away from the European economic crisis. And in a moment, I'll note another out-of-favor financial stock in this group that should be on your radar.
Too much faith in Lampert?
Berkowitz is a big fan of financial engineering, even when it exists for companies in nonfinancial sectors. That's why he built up a $1 billion position in Sears Holdings in 2010 and early 2011. He knew Sears Holdings (Nasdaq: SHLD) was a lousy retail operator, but also knew Chairman Eddie Lampert could pull a lot of levers to squeeze cash flow out of Sears and Kmart stores.