"Tracking Bruce Berkowitz’s Fairholme Portfolio – Q4 2016 Update"
"Bruce Berkowitz’s US stock portfolio decreased this quarter from $1.25B to $983M.Fairholme's stakes in AIG warrants and Bank of America common & warrants were eliminated during the quarter.The portfolio is very concentrated with St. Joe Companies, Sears Holdings & its spinoffs forming almost the entire portfolio.This article is part of a series that provides an ongoing analysis of the changes made to Fairholme’s US stock portfolio on a quarterly basis. It is based on Fairholme’s (FAIRX) (FOCIX) (FAAFX) regulatory  filed on 02/14/2017. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund’s moves during Q3 2016.Berkowitz’s US stock portfolio decreased ~21% from $1.25B to $983M this quarter. The portfolio continues to be very concentrated with almost the entire portfolio invested in St. Joe Companies, Sears Holdings & its spinoffs.Berkowitz’s flagship Fairholme Fund (FAIRX) has generated significant alpha since its December 1999 inception: thru EOY 2016, the fund’s annual returns are at 11.06% compared to 4.53% for the S&P 500 index. The fund has however underperformed over the most recent 10-year period.Equity holdings that are not in the 13F report include Fannie Mae (FNMA) pfds (FNMAS), Freddie Mac (FMCC) pfds (FMCKJ), and Imperial Metals (IPMLF). Stocks and Preferreds together account for ~54% of the AUM. The rest are in cash (~22%) and bonds (~24%).Note: In October 2016, Bruce Berkowitz gave an interview for WealthTrack. Consistent with his current portfolio, he was bullish on JOE/SHLD/Fannie/Freddie and believed these businesses were sitting on very valuable assets - real-estate holdings can be very valuable in an increasing rate environment. Also, his pick for the coming year was Chesapeake (CHK) Bonds maturing 2017 to 2020 - he said they were “money good” and that it had a good yield.Stake Disposals:American International Group (AIG) WTS 45 Strike: AIG was Berkowitz’s largest position as of Q2 2015 even after a ~78% reduction in the common during the previous seven quarters. Q3 2015 saw the common stake almost sold-out (~96% reduction) at prices between $55.50 and $64.50. Q4 2015 saw another ~63% reduction. The remainder common stake was sold out in Q1 2016. The stock currently trades at $60.85. Q1 2016 also saw a large ~52% reduction in the warrants. Q2 2016 saw that stake again reduced by ~50% and that was followed with another ~20% selling last quarter. The remaining fairly large (top five) 7.42% of the portfolio position was disposed of this quarter as the underlying traded between $57 and $67.Bank of America (BAC), WTS 13.30 Strike, and BAC WTS 30.79 Strike:  BAC was Berkowitz’s third largest position at 15.66% of the US long portfolio as of Q2 2016. The stake was first purchased in 2010. Q1 2015 saw a ~19% reduction in the common and a ~8% increase in the warrants. Q3 2015 saw an almost two-thirds reduction in the common at prices between $15 and $18.50. In Q4 2015, the common saw an 86% reduction while the warrants were increased by 21%. The common stake was more than doubled in Q1 2016 at prices between $11 and $17. Q2 2016 saw another ~50% increase in the common stake at prices between $12 and $15. Last quarter saw a huge ~87% reduction in the common at prices between $12.74 and $16.19. The warrants also saw a ~18% reduction. The combined ~7% remaining position were sold out this quarter as the common traded between $15.50 and $23. It currently trades at $24.58.Stake Increases:Sears Canada (SRSC): The ~3.5% SRSC position was established in Q4 2014 as a result of Fairholme participating in a rights offering from Sears Holdings. They distributed one subscription right for each share of Sears Holdings held and it allowed the purchase of 0.375643 shares of Sears Canada at $9.50 per share. The rights would have resulted in the purchase of around 10M shares but Berkowitz ended up with ~40% more (oversubscription privilege). The position was increased since. Last few quarters have also seen minor increases. The stock is now at $1.55.Stake Decreases:St Joe Companies (JOE): JOE is the largest stake at 47.24% of the 13F portfolio. The bulk of the position was purchased in the 2008-2009 timeframe and there have only been minor adjustments since. Currently, it trades at $16.90. Last two quarters have seen marginal trimming.Sears Holdings Corp (SHLD) and Sears WTS 28.41 Strike: Sears is Berkowitz’s second-largest position at 26.21% of the US long portfolio. The original stake was established in 2007 although the position size has fluctuated over the years. The current stock price ($7.58) is far below Fairholme’s cost-basis. He controls ~25% of the business. There was marginal trimming in the last two quarters.Lands’ End (LE): The ~5% LE stake was purchased in Q3 2015 at prices between $21 and $29 and increased by 63% the following quarter at prices between $21 and $28. There was a ~12% increase last quarter at prices between $14.21 and $19.36. The stock is currently at $18.25. This quarter saw marginal trimming.Note: Lands’ End is an April 2014 spinoff from Sears Holding. Berkowitz received ~7.35M shares but that stake was sold out by the end of that year. The current position is ~10.4% of the business.Kept Steady:Seritage Growth Properties (SRG): SRG is a top-three ~15% position. It was spun-off from Sears Holdings through a Rights Offering in July 2015 and Fairholme participated in the transaction. Trading started at $37 per share and it currently trades at $44.49.Leucadia National (LUK): LUK is a very long-term holding that was built-up over several years. The position had seen large reductions since Q2 2013. Recent activity follow: Q4 2015 saw a ~55% reduction at prices between $16 and $21 and the remaining stake was almost eliminated the following quarter at prices between $14.50 and $17.50. It currently trades at $25.Sears Hometown & Outlet Stores (SHOS): SHOS is a minutely small 0.37% position. It saw a ~89% increase in Q4 2015 but the relative sizing is still very small.Note 1: Sears Hometown and Outlet Stores is a spinoff from Sears Holdings (mid-October 2012 rights offering).The spreadsheet below highlights changes to Fairholme’s US stock holdings in Q4 2016:13D/G/A & Form 3/4 filings thru 11/16/2016: LE - 10/11/2016 13G/A - 3.35M shares - 10.5%."