If others fear or hate a particular investment, take a bit of time to analyze why, and whether it is justified.
4. Patience
Berkowitz is the epitome of a long-term investor. As demonstrated by his lack of changes to the fund for long stretches, Berkowitz takes a great deal of time to consider the future potential of a business, invests in it, and then sticks with it. Berkowitz is already looking ahead five to seven years, and anticipating the changes in store for his investments — which he thinks will quadruple in that time frame. For its Sears holdings, Berkowitz shows how the long-term approach can give you a different perspective on the future of a business.
While most analysts are looking for improvements in the company’s sales information quarter to quarter, Berkowitz isn’t hinging his investment on the recovery of Sears as a leading retailer. When applying an eye for the future, Berkowitz recognizes that Sears’ properties are valuable and can be used for alternative facilities in the future — allowing the company to use means outside of retail to provide shareholder value. (This also plays back to lesson No. 1, since Berkowitz is comfortable in the real estate sphere)
Time has proven to be one of the most useful tools for investors, as studies have shown, time and time again, the damage done to portfolios that move with frequency in short-term periods.
5. Price matters…
In context. Saving this lesson for last was intentional, as price should not be the most important factor when judging an investment. While lots of analysts, managers, and investors will obsess over price targets and daily moves, it’s important to keep a stock’s price in context. One of the biggest reasons for Berkowitz’s investments in the three companies mentioned above was an opportunity to exploit a pricing discrepancy for each. More specifically, in the case of Bank of America and AIG, both were trading below tangible book value (or liquidation value). Berkowitz saw this as a chance to get in early and ride the stock as both prices and book values improved.
Instead of looking directly at an individual price and its movement, be sure to measure it against a company’s value, cash flows, and other important metrics that can give you a better view of the operation’s ability to grow and flourish.
A voice above the crowdIt’s important to note that Berkowitz is one of the loudest voices supporting AIG in the market these days. With all of the news fodder that continues to plague the company after bringing the financial world to its knees, most investors are still wary about owning a stake in AIG today. To give you some more perspective on the pros and cons of the insurance giant, we’ll fill you in on both reasons to buy and reasons to sell AIG, and what areas that AIG investors need to watch going forward. Just click here now for instant access.
The article 5 Lessons From Bruce Berkowitz That Can Help You Profit originally appeared on Fool.com and is written by Jessica Alling.
Fool contributor Jessica Alling has no position in any stocks mentioned, but you can contact her here. The Motley Fool recommends American International Group (NYSE:AIG). The Motley Fool owns shares of American International Group and Bank of America and has the following options: Long Jan 2014 $25 Calls on American International Group.
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