"Tracking Bruce Berkowitz’s Fairholme Portfolio – Q4 2018 Update"
"Bruce Berkowitz’s 13F stock portfolio value decreased ~39% this quarter from $599M to $367M.Fairholme dropped Spectrum Brands and Vistra Energy while reducing Vista Outdoor and Jefferies Financial Group.The 13F portfolio has 95% invested in St. Joe Companies.This article is part of a series that provides an ongoing analysis of the changes made to Fairholme’s 13F stock portfolio on a quarterly basis. It is based on Fairholme’s regulatory  filed on 02/14/2019. 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 2018.Berkowitz’s 13F stock portfolio value decreased ~39% from $599M to $367M this quarter. The 13F portfolio currently has 95.34% invested in St. Joe Companies.Berkowitz’s flagship Fairholme Fund (FAIRX) has generated significant alpha since its December 1999 inception: thru 2018, the fund returned at an annualized rate of 7.99% compared to 4.89% for S&P 500 index. FAIRX has however underperformed over the most recent 10-year period. Of the $1.1B AUM, Cash and Equivalents are at ~44%, St. Joe stock at ~30%, and Fannie/Freddie Pfds at 12.8%. The other funds under Fairholme umbrella are Fairholme Focused Income Fund (FOCIX) and Fairholme Allocation Fund (FAAFX). Large equity holdings that are not in the 13F report include Fannie Mae (FNMA) pfds (FNMAS), Freddie Mac (FMCC) pfds (FMCKJ), and Imperial Metals (IPMLF).Note: Fairholme’s 2018 Letter had the following regarding Fannie/Freddie: they believe that despite the 35% jump in January, the preferred shares continue to trade at large discounts to redemption values and realistic future outcomes.Stake Disposals:Spectrum Brands (SPB): Combined, SPB & HRG Group accounted for 5.4% of the portfolio as of Q2 2018. In August, HRG Group’s controlling interest structure was unwound by merging with Spectrum Brands. SPB traded at prices between $68 and $98 over Q2 & Q3 2018 and currently goes for $55.52. The position was disposed this quarter at prices between $41.50 and $75.Berkshire Hathaway (BRK.B): BRK.B was a minutely small 0.34% of the portfolio stake established last quarter at prices between $186 and $222 and disposed this quarter at prices between $188 and $224. The stock currently trades at ~$204.Vistra Energy (VST): The 4.21% VST positon was purchased in Q1 2018 at prices between $17.50 and $21 and disposed this quarter at prices between $21 and $25.50. It is now at $26.02.Note: Vistra Energy emerged from bankruptcy reorg in December 2016 and started trading at ~$16 per share.Sears Holdings Corp (SHLDQ) and Sears WTS 28.41 Strike: The original Sears stake was established in 2007 although the position size has fluctuated over the years. Fairholme’s original cost-basis was ~$61. There was a ~13% trimming in Q4 2017 and that was followed with a ~27% selling next quarter at prices between $2.07 and $3.80. Last quarter also saw a ~20% reduction at prices between $0.80 and $2.40. In October, Sears filed for bankruptcy protection and CEO Eddie Lampert stepped down.AT&T Inc. (T): T was a minutely small position established in Q1 2018. Next quarter saw the stake built up to a 5.30% position at prices between $31.50 and $36. Last quarter saw an about turn: ~70% selling at prices between $30.25 and $34 and the elimination this quarter was at prices between $27.25 and $34. The stock currently trades at $30.28.New Stakes:None.Stake Increases:None.Stake Decreases:St Joe Companies (JOE): JOE is the largest stake by far at 95.34% of the 13F portfolio. The bulk of the position was purchased in the 2008-2009 timeframe and there have only been minor adjustments since. Last three quarters of 2017 had seen a combined ~14% increase at prices between $16.35 and $19.55.  Currently, it trades at $15.56. Berkowitz’s ownership stake is at ~44% of the business. Last year saw minor trimming.Vista Outdoor (VSTO): VSTO is a 4.57% portfolio stake established in Q1 2018 at prices between $14 and $20 and increased by ~80% next quarter at prices between $13 and $18. The stock currently trades well below those ranges at $8.29. Last quarter saw a ~30% selling at prices between $15.50 and $19 and that was followed with a ~60% selling this quarter at prices between $10 and $17.50.Note: Vista Outdoor is a 2015 spinoff from Alliant Techsystems which in turn was spun off from Honeywell. It is a dominant producer of ammunition that is purchased by military, police, and governments around the world.Jefferies Financial Group (JEF) previously Leucadia National: JEF is a very long-term holding that was built 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 $19.72.Kept Steady:None.The spreadsheet below highlights changes to Fairholme’s 13F stock holdings in Q4 2018:Fairholme Fund  – Performance – negative 14.23% over the last year vs 7.71% for S&P 500 – 378.88% since Dec 1999 inception compared to 186.26% for S&P 500 index.  JOE - Hurricane Michael - The company’s assets benefit from high elevations and hurricane-resistant construction – activities planned for next five years have to be accomplished in 3 now. CEO to update. Long-term focus is key. Fannie/Freddie pfds - on September 28th Judge Lamberth changed his mind and decided that FHFA is not the government but a private actor. Fairholme and others can sue FHFA for money damages for breach of the implied covenant of good faith and fair dealings to be expected from any shareholder-owned company. Judge Lamberth’s latest ruling should advance the re-IPO of Fannie and Freddie in similar fashion to AIG in 2012, Imperial Metals - , Allocation in the Flagship Fairholme Fund: has $1.1 billion of net assets. Of the total, 42.8% is composed of cash, U.S. Treasury Bills, money market funds, and investment-grade commercial paper with an average duration of two weeks. 30.6% is in St. Joe common stock, 12.3% in the preferred stock of Fannie Mae and Freddie Mac, 8.9% in the debt of Imperial Metals, and 2.9% in the common stock of Vista Outdoors. Sears 8% bonds of 2019 compose 1.5% of net assets, with Imperial Metals’ common stock at 0.8% and Sears’ common stock at 0.1%. I and all other Fairholme-affiliates own 17.7% of the Fairholme Fund shares.Regulatory filings thru 11/28/2018:13G/A – 10/19 – SHLD – 3.9M shares – 3.6% of business, 8/28 13GA (14.06M shares – 13% of business)."