The Fairholme Fund recently released a presentation called “Fairholme Stays the Course,” with the tag line, “Ignore the crowd.” In it, the Fairholme Fund explains its investing philosophy and the risks that come with it, specifically investing in unpopular and volatile companies. Point in fact, the Fairholme Fund’s largest holding at the end of the third quarter was American International Group (AIG).
The Fund has more than 27% of its portfolio invested in the insurance company. Bruce Berkowitz, the fund’s founder and manager, has been buying stock steadily in AIG for the Fairholme Fund since the first quarter 2010. He sold 1,682,774 shares in the third quarter 2011. AIG is trading at $21.88, near its 52-week low of $19.18 and down from a 52-week high of $62.87. It carries a one-year target estimate of $27.46, so enough to earn investors a 25% return if AIG reaches its target estimate. Despite the huge upside and a low P/E ratio of 4.97, analysts still give it only a 2.8 on a scale of 1.0 to 5.0 in which 1 is a strong buy and 5 means sell, and no wonder – it has a beta of 3.49, meaning it is roughly 3.5 times more volatile than the market.
See the other unloved stocks Bruce Berkowitz is betting his reputation on here.