"Tracking Bruce Berkowitz’s Fairholme Portfolio – Q3 2014 Update"
"Bruce Berkowitz’s US stock portfolio decreased 27% this quarter from $9.94B to $7.26B as the firm chose not to disclose the large Fannie/Freddie position starting this quarter.Fairholme's largest three stakes continue to be American International Group, Bank of America, and Sears Holdings. They together account for around 86% of the portfolio.The large American International Group position was reduced and the small Lands’ End stake was almost eliminated this quarter.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) regulatory  filed on 11/14/2014. Please visit our  article for an idea on how his holdings have progressed over the years and our  highlighting the fund’s moves during Q2 2014.Berkowitz’s US stock portfolio decreased 26.94% from $9.94B to $7.26B this quarter. The large decrease was mainly due to Fairholme choosing to not disclose the Fannie/Freddie position as of this quarter - they are not  and so are not required to be reported. The portfolio continues to be very concentrated with most of it invested in just five businesses. The largest three positions are American International Group, Bank of America, and Sears Holdings and together they account for 76.66% of the US long portfolio - the percentage increases to 85.99% when including the associated warrants.New stakes:None.Stake Disposals:None.Stake Increases:Sears Holdings Corp (SHLD): SHLD is Berkowitz’s third largest position at 8.86% of the US long portfolio. The original stake was established in 2007 although the position size has fluctuated over the years. Last two years saw consistent buying and the share count has increased from around 16.8M shares to 25.51M shares. Q4 2013 saw a ~2.7% stake increase at prices between $44 and $66 and Q1 2014 saw another 15% stake increase at prices between $34 and $49. This quarter also saw a 3.38% increase. The current stock price ($37.31) is far below Berkowitz’s average purchase price. The pattern of buying signifies a strong bullish bias. For investors attempting to follow Berkowitz, SHLD is a very good option to consider: he controls ~23% of the business.NOTE: The implied performance of his recent SHLD purchases by the prices quoted above is negatively skewed because of the effect of the Lands’ End spinoff in April and a couple of rights offerings last month: a) Lands’ End (LE) was spun-off from SHLD whereby SHLD holders received LE shares at the ratio 0.300795:1, b) Sears Canada Rights: Sears Holdings Corporation distributed, at no charge, to holders of its outstanding common stock as at 5:00 p.m. on October 16, 2014, transferrable subscription rights entitling them to purchase common shares of Sears Canada Inc. held by Sears Holdings at a price of U.S. $9.50 per whole share, and c)  2019 unsecured debt & WTS Rights: Each subscription right consisted of a 8% senior unsecured note due 2019 and warrants to purchase common stock at a strike price of $28.41.Stake Decreases:American International Group (AIG) & AIG WTS 45 Strike: AIG is Berkowitz’s largest position at 44.86% of the US long portfolio (52.92% including warrants). The position size in the common was reduced by 6% in Q4 2013 at prices between $47.30 and $52.30. Q1 2014 saw another ~5% stake reduction at prices between $46.88 and $52.22. Last quarter, the warrants (Jan 2021 45 Strike, Yahoo Ticker - AIG-WT, Current Quote - $24.32) were marginally reduced while the common was reduced by ~8% at prices between $49.40 and $55.72 and the same pattern continued this quarter: 13.61% reduction in the common at prices between $52 and $56.33 and marginal reduction in the warrants. The stock currently trades at $53.90. Berkowitz is bullish on AIG, although the last several quarters have seen stake reductions.Bank of America (BAC) & WTS 13.30 Strike:  BAC is Berkowitz’s second largest position behind AIG at 24.22% of the US long portfolio. The stake was first purchased in 2010 and minor adjustments have since been made every quarter. This quarter, the common had a small decrease while the warrants (Jan 2019 13.30 Strike, Yahoo Ticker - BAC-WTA, Current Quote - $6.70) were increased marginally - the net effect was a small overall stake reduction. BAC traded between $15 and $17.18 during quarter. It currently trades at $17.14. Berkowitz continues to be bullish on BAC.St Joe Companies (JOE) & Leucadia National (LUK): JOE and LUK are large 6.81% and 4.95% of the US long portfolio stakes respectively. LUK was reduced by 4% and JOE marginally this quarter. The bulk of the JOE stake was purchased in the 2008-2009 timeframe and there have only been minor adjustments since. LUK is a very long-term holding that was built-up over several years. In Q1 2013, the position was increased by around 5% as a result of the all-stock merger deal between LUK and Jefferies. Berkowitz is very bullish on JOE & LUK. JOE trades at $18.76 and LUK at $24.41 currently. For investors attempting to follow Berkowitz, these are good options to consider for further research.Lands’ End (LE): LE was a small 1.14% of the US long portfolio position established last quarter as a result of its spin-off from Sears Holding that became effective in April. The terms called for Sears’ shareholders to receive Lands’ End shares in the ratio 0.300795:1. Berkowitz received around 7.41M shares and he sold more than half in the quarter at prices between $25.86 and $34.87. This quarter, the remaining position was almost eliminated at prices between $33 and $47.70. The stock currently trades at $47.64. The stake reduction indicates a mild bearish bias.Berkshire Hathaway (BRK.B) (BRK.A): BRK.B is a very small 0.54% of the US long portfolio position that was reduced marginally this quarter. As the position size is very small and the activity is minor, the selling does not indicate a clear change in bias.Others:Federal Home Loan Mortgage Association & PFD (FMCC) (FMCKJ) and Federal National Mortgage Association & PFD (FNMA) (FNMAS): These positions were first disclosed in a  when it was announced that they hold $2.4B par value of the preferred stocks of these two entities. The press release went on to push the restructuring of Fannie and Freddie. The preferred shares traded at around $6 (~25 cents on the dollar: $25 par value) at the time of the announcement and they currently trade at around $4.20 & $6.05 respectively for Fannie and Freddie (~17c and ~24c on the dollar). Starting this quarter, Fairholme has stopped disclosing these stakes as they are not 13F securities. The common & preferred stock prices of both these businesses experienced large price drops following a  in early October. Investors had filed around 20 lawsuits against the US government over Fannie/Freddie and the Federal Housing Finance Agency’s actions as conservator. Hedge Funds involved include Perry Capital, Fairholme Capital, and Pershing Square Capital Management.Other very small positions (less than 0.5% of the US long portfolio each) in the portfolio include BP plc (BP), Chesapeake Energy (CHK), Citigroup Inc. (C), KKR & Co. (KKR), Hartford Financial Services (HIG) & WTS 9.563 Strike, JP Morgran Chase WTS 42.42 Strike, Lincoln National (LNC) & WTS 10.636 Strike, New York Community Bancorp (NYCB), Vodafone Group plc (VOD), and Wells Fargo (WFC) & WTS 34.01 Strike.The spreadsheet below highlights changes to Fairholme’s US stock holdings in Q3 2014:"