"Tracking Bruce Berkowitz’s Fairholme Portfolio – Q1 2016 Update"
"Bruce Berkowitz’s US stock portfolio decreased this quarter from $2.43B to $1.66B.Fairholme's large stake in AIG Warrants was reduced while increasing Bank of America.The portfolio is very concentrated with the largest three positions accounting for ~63% of the US long assets.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 05/16/2016. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund’s moves during Q4 2015.Berkowitz’s US stock portfolio decreased 31.99% from $2.43B to $1.66B this quarter. The portfolio continues to be very concentrated with the vast majority invested in just five businesses. The largest three positions are Sears Holdings, St. Joe Companies, and American International Group and together they account for 63.30% of the 13F portfolio.Berkowitz’s flagship Fairholme Fund (FAIRX) has generated significant alpha since its December 1999 inception: thru Q1 2016, the fund’s annual returns are at 9.47% compared to 4.11% for the S&P 500 index. The fund has underperformed over the most recent 10-year period. Top holdings that are not in the 13F report include Fannie Mae pfds (FNMAS), Freddie Mac pfds (FMCKJ), and Imperial Metals (IPMLF). Fairholme Fund is known to hold significant cash especially when markets are high. The current cash allocation is 25.5%.New stakes:None.Stake Disposals:Berkshire Hathaway (BRK.B) (BRK.A): BRK.B was a very small 0.75% of the US long portfolio position as of last quarter. It was sold out this quarter at prices between $124 and $143.Canadian Natural Resources (CNQ) and International Business Machines (IBM): These are medium-sized positions established in Q3 2015 but eliminated this quarter. CNQ was a 5.44% of the portfolio stake established at prices between $19.05 and $27.16 and reduced by ~89% last quarter at prices between $19.36 and $25.60. The elimination this quarter was at prices between $15.76 and $28.06. The stock currently trades at $29.69. The 3.15% IBM stake was established at prices between $141 and $173 was reduced to a 0.27% stake last quarter at prices between $132 and $152. The elimination this quarter was at prices between $118 and $152. It now trades at $148.MRC Global (MRC): MRC was a 2.99% position established in Q3 2015 at prices between $10.90 and $15.72. It was sold out this quarter at prices between $8.71 and $14.95. The stock currently trades at $14.02.Note: Fairholme had a 5.5% ownership stake in MRC Global.Stake Increases:Bank of America (BAC), WTS 13.30 Strike, and BAC WTS 30.79 Strike:  BAC was Berkowitz’s third largest position at 14.68% of the US long portfolio as of Q3 2015. The stake was first purchased in 2010 and minor adjustments had since been made every quarter. Q1 2015 saw a ~19% reduction in the common and a ~8% increase in the warrants (Jan 2019 13.30 Strike, Yahoo Ticker - BAC-WTA, Current Quote - $3.80). Q3 2015 saw an almost two-thirds reduction in the common at prices between $15.26 and $18.45. Last quarter, the common saw an 86% reduction while the warrants were increased by 21%. The common stake was more than doubled this quarter at prices between $11.16 and $16.83. The stock currently trades at $14.01. Overall, the BAC position is still a top-five stake at 10.97% of the 13F portfolio.Sears Canada (SRSC): The 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). This quarter saw a marginal increase. The stock is now at $3.24.Seritage Growth Properties (SRG): SRG is a top-five 10.41% position. It was spun-off from Sears Holdings through a Rights Offering in July 2015 and trading started at $37 per share. Fairholme participated and accumulated 3.37M shares (13.5% of the business). Last two quarters have seen marginal increases. The stock currently trades at $44.96.Stake Decreases:American International Group (AIG) & 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 $55.66 and $64.54. Last quarter saw another ~63% reduction. The remainder common stake was sold out this quarter. The stock currently trades at $55.40. Warrants had also seen marginal reductions in the last four quarters. This quarter saw a large ~52% further reduction. The warrant position is still a large (top-three) stake at 12.06% of the portfolio.Note: In the H1 2015 shareholder letter, Berkowitz revealed he had almost tripled his money on AIG when the stock was trading at ~$62.Lands’ End (LE): The 2.93% LE stake was purchased in Q3 2015 at prices between $21.26 and $28.92 and increased by 63% last quarter at prices between $21 and $28. The stock is currently at $19.07. This quarter saw a ~5% 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 ~9% of the business.Leucadia National (LUK): LUK is a very long-term holding that was built-up over several years. The position has seen large reductions since Q2 2013. Last quarter saw a ~55% reduction at prices between $16.08 and $21.11 and the remaining stake was almost eliminated this quarter at prices between $14.45 and $17.39. It currently trades at $17.47.Now Inc. (DNOW): The 7.26% DNOW stake was purchased in Q3 2015 at prices between $14.80 and $19.74 and the stock currently trades at $17.13. Last quarter saw a minor ~6% increase while in this quarter there was a marginal ~4% reduction.Note: Now Inc. is a May 2014 spinoff from National Oilwell Varco (NOV). Fairholme’s ownership stake in the business is at ~6.5%.Sears Holdings Corp (SHLD) and Sears WTS 28.41 Strike: Sears is Berkowitz’s largest position at 26.39% 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. The current stock price ($11.31) is far below Fairholme’s cost-basis. The pattern of buying signifies a strong bullish bias. For investors attempting to follow Berkowitz, SHLD is a good option to consider for further research. He controls ~25% of the business. This quarter saw marginal reductions in both the common and the warrant stakes.Note: In the 2015 AR, Berkowitz indicated that his updated sum-of-parts valuation for SHLD was $147 per share..St Joe Companies (JOE): JOE is the second-largest stake at 24.85% of the 13F portfolio. The bulk of the stake was purchased in the 2008-2009 timeframe and there have only been minor adjustments since. Currently, it trades at $16.70. Last quarter saw a marginal increase while this quarter saw a minor reduction.Stake Decreases:Sears Hometown & Outlet Stores (SHOS): SHOS is a minutely small 0.30% position. It saw a ~89% increase last quarter 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 Q1 2016:13D/G/A, Form 3/4s after 8/15/2015: 13G/A 10/2/2015 SRSC 17.9M shares 17.57% of business. 13D/A 9/30/2015 JOE 24.46M shares 32.3% of business."