After just a few short months, megamoney manager Bruce Berkowitz is back in the news following the re-opening of his Fairholme Fund to new investors. As Morningstar’s Money Manager of the Decade, Berkowitz is followed closely and admired greatly. With the reopening of his fund, Berkowitz will give investors new insights into his investment philosophy. But for those who can’t wait to see what new positions Fairholme takes, here are a few of Berkowitz’s best investment quotes from recent interviews.
1. “You only need a few good ideas to make a significant difference in a lifetime.”
One of the key criticisms of Berkowitz’s fund is that it is heavily concentrated in a small number of companies. In fact, the harshest criticism tends to hover around the fact that American International Group Inc (NYSE:AIG) makes up half of the funds holdings. But Berkowitz isn’t fazed — in fact, he would buy more of his top holdings if it made financial sense. And in order to have good ideas, you really need to know your stuff and be confident in your understanding of the companies you invest in.
Concentrating on his core competencies has lead to a laser-like focus for the fund. When asked why he wouldn’t consider selling off some of his Bank of America Corp (NYSE:BAC) shares (the No. 2 holding for Fairholme) in favor of taking up some Citigroup Inc (NYSE:C) shares, Berkowitz spoke directly of his knowledge level. Though Citigroup is trading on the cheap side, like both Bank of America Corp (NYSE:BAC) and American International Group Inc (NYSE:AIG), it doesn’t have the same domestic retail operations that Bank of America Corp (NYSE:BAC) manages. Though Citigroup Inc (NYSE:C) would present a solid international opportunity, Berkowitz feels he knows the Bank of America Corp (NYSE:BAC) market better.
2. “Diversification over diversification will just lead to an average return… the price for an above-average return is short-term volatility.”
This quote harkens back to No. 1, with Berkowitz’s belief that you don’t need more than a handful of good investments to succeed. But even with that idea, it can prove tough for investors to hang in there when things start to fall. It was tough going for the Fairholme Fund in 2011, when it lost 30%. But with the same companies in its hand, the fund beat 99% of its competitors the following year. Though no one likes it, investors need to be prepared for their portfolios to go down. But if you’ve invested in a solid business, and the downturn is not related to the underlying principals of the business or its market, you should feel confident that the drop will not last forever.