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RWH041: Ignore the Crowd w/ Super-investor Bruce Berkowitz

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Feb 18, 2024

Guest

Bruce Berkowitz

William Green chats with Bruce Berkowitz, a renowned investor and chief investment officer of Fairholme Funds, famous for his impressive 23-year track record. They discuss Berkotwitz's major investment shifts after significant losses and his unique approach of concentrating 80% of his fund on one stock. He shares insights on the impact of cash as 'financial valium' and the emotional lessons from investing in Sears. Bruce also examines long-term trends in Florida's growth and assesses the investment risks posed by climate change.

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Episode notes

insights

INSIGHT

Learning from Others' Mistakes

Berkowitz witnessed regular investors making poor decisions, being sold unsuitable products.
He observed high expenses and emotional decision-making, shaping his investment philosophy.

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ANECDOTE

Early Concentration

At Smith Barney, Berkowitz's portfolio consisted of only two stocks, one being Berkshire Hathaway.
This early concentration foreshadowed his later preference for focused investments.

insights

INSIGHT

St. Joe Concentration

Berkowitz's 82% allocation to St. Joe developed organically as other investors exited his fund.
This concentration reflects his long-term view and control as chairman.

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Lessons from the Corner Store

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Lessons from the Betting Table

09:25 • 14min

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From Humble Beginnings to Investment Insights

23:00 • 11min

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The Art of Concentrated Investing

34:18 • 5min

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The Power of Concentrated Investing

39:46 • 15min

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Investing in Energy and Financial Resilience

54:24 • 14min

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The Unpredictable Game of Modern Finance

01:08:49 • 5min

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Sears: Lessons in Investment and Leadership

01:13:42 • 20min

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Assessing the Resilience of St. Joe, Florida Against Climate Risks

01:33:41 • 3min

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Evolving Routines and Personal Growth

01:36:32 • 18min

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Investing and Obsession

01:54:42 • 5min

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In this book, Vaclav Smil explores seven fundamental areas that govern human survival and prosperity. He delves into energy production, food production, the material world and its globalization, and the environmental and future risks we face. Smil argues that our societies have increased their dependence on fossil fuels and that rapid decarbonization is unlikely due to the immense material requirements of modern civilization. He provides a data-rich and revisionist view, highlighting the importance of understanding the facts before tackling problems effectively. The book also addresses the challenges of climate change, the limitations of technological advancements, and the need for a realistic grasp of our past, present, and uncertain future.

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In Richer, Wiser, Happier, William Green draws on interviews conducted over twenty-five years with many of the world’s greatest investors. The book highlights that the most successful investors are mavericks and iconoclasts who question conventional wisdom and think rationally, rigorously, and objectively. They maximize their odds of long-term success in markets and life by drawing insights from diverse fields such as neuroscience, economic history, psychology, philosophy, and more. Green explains how these investors can teach us not only how to become rich but also how to improve our thinking, decision-making, risk assessment, and resilience, and how to turn uncertainty to our advantage.

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Energy and Civilization

Vaclav Smil

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Security Analysis

Benjamin Graham

David L. Dodd

First published in 1934, Security Analysis is a seminal work in the field of finance that lays the intellectual foundation for value investing. The book, written by Benjamin Graham and David L. Dodd, distinguishes between investing and speculating, emphasizes the importance of thorough financial analysis, and introduces key concepts such as the 'margin of safety. ' The sixth edition includes commentary from leading Wall Street money managers and a foreword by Warren E. Buffett, who has praised the book for its enduring relevance in modern markets.

In this episode, William Green chats with famed investor Bruce Berkowitz, whose Fairholme Fund has beaten the S&P 500 by 529 percentage points over 23 years. Bruce, who was named Morningstar’s Domestic Stock-Fund Manager of the Decade in 2009, talks here about the ups & downs of his volatile career, how he changed his investment strategy after three costly losses, why he likes cash as a kind of “financial valium,” & why 80% of his fund is riding on one stock.

IN THIS EPISODE, YOU’LL LEARN:

00:00 - Intro

04:44 - What Bruce Berkowitz learned about odds by working as a bookmaker.

06:26 - What his stint as a broker taught him about how not to invest.

34:18 - Why he makes huge bets on a tiny number of stocks.

41:53 - How he’s riding a multi-decade wave of migration to Florida.

48:57 - How he justifies betting 80% of his fund on one stock.

54:59 - How he’s playing long-term trends in the energy sector.

56:56 - Why he’s changed the way he invests.

59:08 - Why he’s acutely wary of bank stocks.

59:20 - What he learned from losing big on Sears, Fannie Mae, & Freddie Mac.

1:17:53 - Why he views cash as a valuable form of “financial valium.”

1:28:51 - How he assesses the investment threat of global warming.

1:33:50 - Why he operates as a lone wolf, not part of a team.

1:39:53 - What he’s tried to teach his three children.

1:45:31 - How he handles setbacks.

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

Bruce Berkowitz’s investment firm, Fairholme Funds.
Vaclav Smil’s book How the World Really Works.
Vaclav Smil’s book Energy & Civilization.
William Green’s book, “Richer, Wiser, Happier” – read the reviews of this book.
Follow William Green on X (AKA Twitter).
Check out all the books mentioned and discussed in our podcast episodes here.

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RWH041: Ignore the Crowd w/ Super-investor Bruce Berkowitz

Learning from Others' Mistakes

Early Concentration

St. Joe Concentration

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