Friday, June 23, 2006

Bruce Berkowitz: Forget GAAP accounting.

"Buy good businesses with strong balance sheets and above average returns on capital," Berkowitz says. "For us, some of the best businesses are those with huge free cash flows. Forget GAAP accounting. Cash is all you can spend."

He continues, "Like Buffett, we want companies run by great people. Our ideal company is one that is run by an owner/manager or by people who act like owner/managers. We want managers who are honest, talented, and hard working. We want their interests aligned with ours. Price is also a factor. We are willing to pay a fair price, but we will not overpay. Buying on weakness provides us with an extra margin of safety."

Berkowitz and Fairholme believe that good investment ideas are rare. As a result, the fund is organized as a non-diversified open-end fund. This means that it can hold fewer securities (typically 10 to 25 positions) and that it can hold larger positions in Berkowitz's best ideas. According to the latest available portfolio report, the fund's two largest holdings Berkshire Hathaway A (12.1%) and EchoStar Communications DISH (11.31%) accounted for almost 25% of assets. The fund's top five holdings account for nearly 45% of its assets.

"We want to put most of our money to work in our top few ideas, not our 50th best idea or our 100th best idea," Berkowitz says. In addition, Berkowitz believes that the size of his investments in a company provides him with better access to management. "When we put enough money into a firm, they treat us like we are owners."

Read the complete article

Thank you GuruFocus for the link.

Happy learning,

Dah Hui Lau (David)

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