CommonWealth Magazine - Summer/Fall 2005
One Man’s Investments - Bruce Berkowitz ‘80
“The best type of person for a job like mine is an investigative reporter who knows finance. To do well, you have to enjoy reading annual reports, SEC filings, and legal documents. It takes a lot of time and effort. If you don’t like this sort of thing, you’ll burn out fast,” guest practitioner Bruce Berkowitz ‘80 told Ben Branch’s undergraduate banking class last April. A former UMass economics major and a teaching assistant to Branch, Berkowitz is founder and managing member of the Short Hills, New Jersey investment advisory firm, Fairholme Capital Management, which manages assets of over $1.4 billion for individuals, ERISA accounts, corporations, and insurance companies. In 1999, he launched the Fairholme Fund, a mutual fund that frequently invests in distressed, undervalued companies. In its five-plus years, the fund has yielded annualized returns of 19 percent, placing it among the top 1 percent of diversified U.S. stock funds.
“The wealthiest people in the country have done one or two things very well. The trick is to know just a few things on a subject better than anybody else,” Berkowitz emphasized. Hence, Berkowitz’s painstaking research, including time well-spent in bankruptcy court. “In this country, bankruptcy’s a wonderful thing. You get second, third, and fourth chances,” he told the students. For Berkowitz and Fairholme, the telecoms have been a case in point. “We’ve learned a lot by sitting in bankruptcy court in lower Manhattan,” he recounted. The fund profited handsomely by buying bonds of the bankrupt telecom, Williams Communications, which after reemerging as Wil Tel, was purchased by Leucadia National. Williams’s bonds converted to Wil Tel shares. Today, Fairholme’s investment in Leucadia shares has topped $30 million.
In 2003, Fairholme began buying up bonds from the bankrupt telecom, WorldCom. When WorldCom reemerged as MCI, Fairholme’s holdings converted to shares: it now owns 3.4 percent of MCI’s stock. As MCI’s fourth largest stockholder, Fairholme has exerted increasing influence on the telecom as two suitors, Verizon and Qwest, vie in a bidding war to buy the telecom. “Many of these telecoms are just now rising from the ashes of a great depression. Tremendous opportunities lie just ahead,” Berkowitz told the students.