"Tracking Bruce Berkowitz’s Fairholme Portfolio – Q1 2015 Update"
"Bruce Berkowitz’s US stock portfolio decreased this quarter from $7.30B to $5.34B.Fairholme's huge stakes in American International Group and Bank of America were both reduced significantly this quarter.The portfolio is still very concentrated with the largest three positions accounting for 78% 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) regulatory  filed on 05/15/2015. Please visit our  article for an idea on how his holdings have progressed over the years and our  highlighting the fund’s moves during Q4 2014.Berkowitz’s US stock portfolio decreased ~27% from $7.30B to $5.34B this quarter - the huge decrease is primarily due to large stake reductions in American International Group and Bank of America. 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 two-thirds of the US long portfolio - the percentage increases to 78.20% when including the associated warrants.New stakes:None.Stake Disposals:Citigroup Inc. (C): C was a minutely small 0.04% stake that was disposed of this quarter. It is a remnant from a huge position that was established in 2009. The stake peaked at well over $1B in Q2 2011. The vast majority of the position was sold in Q4 2011 and Q1 2012 in the high 20s and low 30s. The stock currently trades at $54.24.Stake Increases:Sears Canada (SRSC) and Sears WTS 28.41 Strike: These positions were established last quarter as a result of Fairholme participating in two rights offerings from Sears Holdings. The SRSC rights offering 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 Notes & WTS rights offering was for $625M in notes and 22M in warrants (strike $28.41 expiring in five years - 2019). Here again, the rights offering would have allowed the acquisition of around 6.1M warrants but Berkowitz ended up with 6.4M. This quarter saw minor increases in both stakes. SRSC and SHLD WTS positions are now at 2.53% and 3% of the US long portfolio respectively.Stake Decreases:American International Group (AIG) & AIG WTS 45 Strike: AIG is Berkowitz’s largest position at 24.47% of the US long portfolio (34.47% including warrants). The stake in the common was reduced by ~54% this quarter at prices between $48.87 and $56.49. The stake reductions started in Q4 2013 and this quarter the selling accelerated: overall, the common stake was reduced by ~72% during the last six quarters. The stock currently trades at $58.36. Meanwhile, the position in the warrants was marginally increased over the same period - this quarter saw a marginal reduction.Bank of America (BAC) & WTS 13.30 Strike:  BAC is Berkowitz’s second largest position behind AIG at 22.11% of the US long portfolio. The stake was first purchased in 2010 and minor adjustments had since been made every quarter. This quarter 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 - $5.67). BAC traded between $15.15 and $17.90 during the period. It currently trades at $16.35.Berkshire Hathaway (BRK.B) (BRK.A): BRK.B is a very small 0.75% 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.Canadian Natural Resources (CNQ): CNQ was a minutely small position established last quarter. It was almost eliminated this quarter. The activity is too minor to indicate any bias.St Joe Companies (JOE) & Leucadia National (LUK): JOE and LUK are large 8.60% and 5.76% of the US long portfolio stakes respectively. 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. The last two years have seen a ~23% reduction in LUK while the JOE stake has remained relatively steady - this quarter saw minor selling in both. JOE trades at $16.36 and LUK at $24.05 currently. For investors attempting to follow Berkowitz, these are good options to consider for further research.Sears Holdings Corp (SHLD): SHLD is Berkowitz’s third largest position at 20.13% 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 increased from around 16.8M shares to ~26M shares. Q4 2013 saw a ~2.7% increase at prices between $44 and $66 and Q1 2014 saw another 15% increase at prices between $34 and $49. Last two quarters saw minor increases while this quarter saw a marginal decrease. The current stock price ($41.93) 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 2014 and a couple of rights offerings in October 2014: 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.Kept Steady:BAC WTS 30.79 Strike, JP Morgan WTS 42.42 Strike, Lincoln National WTS 10.92 Strike, and Wells Fargo WTS 34.01 Strike: These are minutely small positions that were kept steady this quarter.The spreadsheet below highlights changes to Fairholme’s US stock holdings in Q1 2015:"