"Tracking Bruce Berkowitz’s Fairholme Portfolio – Q3 2018 Update"
"Bruce Berkowitz’s 13F stock portfolio value decreased ~20% this quarter from $744M to $599M.Fairholme increased Spectrum Brands while reducing Vista Outdoor, AT&T, and Sears Holdings.The portfolio is very concentrated with St. Joe Companies, Vista Outdoor, and Vistra Energy forming almost ~92% of the entire portfolio.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 11/14/2018. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund’s moves during Q2 2018.Berkowitz’s 13F stock portfolio value decreased ~20% from $744M to $599M this quarter. The portfolio continues to be very concentrated with ~92% of the holdings invested in St. Joe Companies, Vista Outdoor, and Vistra Energy.Berkowitz’s flagship Fairholme Fund (FAIRX) has generated significant alpha since its December 1999 inception: thru Q3 2018, the fund returned 	at an annualized rate of 8.71% compared to 5.77% 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 ~43%, St. Joe stock at 30.6%, and Fannie/Freddie Pfds at 12.3%. 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), Imperial Metals (IPMLF), and International Wire Group (ITWG).Note: Fairholme’s October Investment Update had the following regarding Fannie/Freddie: they believe Judge Lamberth’s latest ruling should advance the re-IPO of Fannie and Freddie in similar fashion to AIG in 2012.Stake Disposals:HRG Group: HRG Group and Spectrum Brands were new stakes established last quarter for a combined 5.4% position. In August, HRG Group’s controlling interest structure was unwound by merging with Spectrum Brands thus eliminating this position.Citigroup Inc. (C): C was a 2.11% portfolio stake established last quarter at prices between $65.50 and $73 and disposed this quarter at around the same price range. The stock currently trades at $63.46.Oaktree Capital Group (OAK): OAK was a small ~1% position purchased in Q1 2018 at prices between $39.50 and $46 and doubled last quarter at prices between $39 and $42.50. The elimination this quarter was at prices between $38.75 and $42.50. The stock is now at $40.90.Clipper Realty (CLPR): The minutely small 0.32% CLPR position was disposed this quarter.New Stakes:Berkshire Hathaway (BRK.B): BRK.B is a minutely small 0.34% of the portfolio stake established this quarter at prices between $186 and $222 and the stock currently trades at ~$213.Stake Increases:Spectrum Brands (SPB): Combined, SPB & HRG Group accounted for 5.4% of the portfolio as of last quarter. In August, HRG Group’s controlling interest structure was unwound by merging with Spectrum Brands. SPB traded at prices between $68 and $98 over the last two quarters and currently goes for $49.76. The stake is now at 3.63% of the portfolio.Stake Decreases:St Joe Companies (JOE): JOE is the largest stake by far at ~77% 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 $14.91. Berkowitz’s ownership stake is at ~44% of the business. Last three quarters have seen minor trimming.Vista Outdoor (VSTO): VSTO is a large (top three) 10.54% portfolio stake established in Q1 2018 at prices between $14 and $20 and increased by ~80% last quarter at prices between $13 and $18. The stock currently trades at $11.74. This quarter saw a ~30% selling at prices between $15.50 and $19.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. Faiholme thinks the shares are currently down because of consumer oversupply issues. They expect Vista Outdoor to sell non-core assets and reduce debt.Vistra Energy (VST): The 4.21% VST positon was purchased in Q1 2018 at prices between $17.50 and $21 and it is now above that range at $22.92. Last two quarters have seen minor trimming.Note: Vistra Energy emerged from bankruptcy reorg in December 2016 and started trading at ~$16 per share.Sears Holdings Corp (SHLDQ): 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. This quarter also saw a ~20% reduction at prices between $0.80 and $2.40.Note 1: Last month, Sears filed for bankruptcy protection and CEO Eddie Lampert stepped down.Note 2: Regulatory filings since the quarter ended show them owning 3.9M shares (3.6% of business). This is compared to 14.06M shares (~13% of business) in the 13F report.AT&T Inc. (T): T was a minutely small position established in Q1 2018. Last quarter saw the stake built up to a 5.30% position at prices between $31.50 and $36. This quarter saw an about turn: ~70% selling at prices between $30.25 and $34. The stock currently trades at $30.44.Sears WTS 28.41 Strike: The minutely small 0.02% position in Sears WTS had seen a ~12% reduction in Q4 2017 and that was followed with a ~4% trimming next quarter. Last two quarters have seen marginal trimming.Kept Steady: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 $21.52.The spreadsheet below highlights changes to Fairholme’s 13F stock holdings in Q3 2018:Faiholme Fund  – Performance – negative 8.49% YTD vs 2.65% for S&P 500 – 9.24% annualized since Dec 1999 inception compared to 5.42% for S&P 500 index. JOE – valued at $5.1K per acre net of cash – growth should serve as catalyst over next few years: 3000 homes for 50-and-better in 2020 thru a joint venture, 813K commercial space 87% leased, and airport (Northwest Florida Beaches International Airport) reaching 1M annual passenger traffic. The company has repurchased one-third of its outstanding shares over the last few years as well. Fannie/Freddie pfds – latest developments positive (White House released paper advocating ending conservatorship among other things and Mnuchin saying 2019 is the year to resolve Fannie/Freddie issues). Imperial Metals – bonds trading at double-digit yields because of metal pricing although assets are there – expects equity to post favorable returns over coming years. Sears – their bonds have 2019 maturities while the company’s debt maturities have been extended. International Wire Group debt – Good assets backing the April 2021 debt offer equity-like returns. NEW INVESTMENTS IN 2018: Vista Outdoor – VSTO –Honeywell offshoot from the early 90s - dominant producer of ammunition that is purchased by military, police, and governments around the world, in addition to U.S. consumers – currently down because of consumer oversupply issues – expects the company to sell non-core assets and reduce debt. Spectrum Brand Holdings – several well-known brands – all-stock merger with controlling shareholder HRG should unlock value – expects reduction in debt and selling of non-core assets. Vistra Energy – Reorganized Energy Future Holdings & Dynergy merger – strong balance sheet with good cash-flow generation capacity. AT&T – strong cash-flow providing ample coverage for a large dividend. C – purchased at 10x earnings and at a discount to BV – essential global financial institution. OUTLOOK – The current benign environment could quickly change allowing an opportunity to investors with liquidity. CASH at 25.3%. Holdings Summary:Regulatory Filings thru 8/14/2018: 13D/A – 8/2 – JOE – 25.84M shares – 42.2% of business. Bruce’s ownership is mentioned as 27.4M shares - ~44% of business – consistent with 13F."