Investors can earn significant returns by following a strategy that makes Bruce Berkowitz successful. has led. Getty Images
Award-winning portfolio manager Bruce Berkowitz talks about his investment strategy and gives tips.
Investors should focus on unpopular companies that generate cash and have strong management teams.
Here are some of Berkowitz’s best investment ideas, including one in which he invested 80 percent of his fund assets.
This is a machine translation of an article from our US colleagues at Business Insider. It was automatically translated and checked by a real editor.
Over the past decade, veteran fund manager Bruce Berkowitz has experienced booms and busts – with almost nothing in between. He began his storied career at Merrill Lynch before moving to Lehman Brothers and Smith Barney. He then founded Fairholme Capital Management in 1997 and launched the flagship Fairholme Fund (FAIRX) at the end of 1999, which he has managed alone since then.
The Fairholme Fund got off to an incredibly good start. In the first ten years of its existence, the fund’s assets grew from a few million to over ten billion dollars. It achieved an annual return of 13.2 percent, outperforming the S&P 500 by 14 percentage points. For his efforts, Berkowitz received a coveted award in early 2010: the Morningstar “Domestic-Stock Fund Manager of the Decade” award.
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That success continued in the years following the financial crisis, when Berkowitz was named 2013 Asset Manager of the Year by Institutional Investor Magazine. But over the past eleven years, Berkowitz’s fund has had a rockier road. Since 2014, the Fairholme Fund has loudly Morningstar each year in either the top four percent or bottom four percent of its large-cap value category.
Still, sticking with Berkowitz over the last five years would have paid off big time. His fund was in the top six percent of its category during this period. According to Morningstar, in 2023 it will even have reached a place among the first percent.
All of Berkowitz’s wins and losses have hit him hard in every way. The fund manager invests not only for his clients, but also for himself and his family. This increases his stakes. “The Fairholme Fund was always based on the type of investments I wanted to make for my family,” Berkowitz said in an interview with Business Insider, “I always thought it was very important to eat your own soup.”
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How to Find Fallen Angels
When looking for stocks, Berkowitz looks for undervalued companies that others have written off. “I tend to invest in companies that could be described as fallen angels. My belief is that many companies that have fallen will rise again,” said Berkowitz. “I generally don’t invest in companies that have done well because there is a risk that they will fall.”
Valuations should be reviewed based on price-to-free cash flow and price-to-earnings (P/E) ratios, Berkowitz said. He first looks at the company’s valuations based on past data before turning to the future. Both perspectives would provide crucial context about a company.
“It’s important to look back, but it’s just as important to look forward,” says Berkowitz. “It’s not helpful to drive a car by looking through the rearview mirror.” Instead of chasing the promise of future profits, be interested Berkowitz especially for companies that currently generate significant, predictable liquid assets. Stocks that pay high dividends are often among his favorites.
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Three top tips from an award-winning fund manager
After managing the Fairholme Fund for 25 years, Berkowitz highlighted three of the most important lessons he’s learned during his successes and failures in investing. Investors need to protect themselves from losses before trying to make profits, the fund manager said. An investment that loses half of its value would have to double in order to fully regain this value. Berkowitz is particularly careful to limit losses because many of his clients are older and therefore have shorter time horizons, although it is difficult to avoid these pitfalls.
Another crucial component of investing is ensuring that a company has an effective management team. Too often, executives are concerned with keeping their jobs or increasing their compensation rather than making the necessary sacrifices for shareholders.