Bruce Berkowitz, whose $8 billion Fairholme Fund is suffering its second-worst year on record because of wrong-way bets on financial firms, may have lost about $180 million last week on Sears Holdings Corp. (SHLD), the third-largest investment of his flagship fund.
Sears, the retailer controlled by hedge fund manager Edward Lampert, fell as much as 24% after an announcement that it will close as many as 120 stores because consumer electronics sales declined in the holiday shopping period. Mr. Berkowitz's funds owned 16.3 million shares, or 15%, of the company as of Sept. 30, data compiled by Bloomberg show.
Mr. Berkowitz, who was named Morningstar Inc.'s domestic stock manager of the decade in 2010 for returning an average of 13% during that period, trailed about 99% of peers last year after betting that financial stocks would rebound with the economy. Sears declined more than 50% in 2011.
“I think Eddie Lampert is doing a good job of throwing spaghetti against the wall and seeing what sticks,” Mr. Berkowitz said in a June interview with Bloomberg television.
In the same interview, Mr. Berkowitz said, “Let's see what he can do” if there is an upturn in the U.S. economy.
Tom Pinto, a spokesman for Mr. Berkowitz, didn't respond to a message seeking comment.
At the end of 2010, Mr. Berkowitz's firm, Fairholme Capital Management LLC, owned 14.9 million shares of the retailer. In the first quarter of last year, he added 1.4 million shares.
Sears sold for an average of $80.53 a share during the quarter, according to data compiled by Bloomberg.
Sears fell as much as $11.05 to $34.80 after the statement that it will close the stores to reduce costs amid declining sales. The company will record total noncash charges of as much as $2.4 billion for the fourth quarter related to a valuation allowance and goodwill impairment.
The Fairholme Fund owned 14.5 million Sears shares as of Aug. 31. The fund lost 29% last year through Dec. 23, its second-worst performance after a 30% decline in 2008.
Mr. Berkowitz started the fund in 1999.
The Fairholme Fund had 76% of its stock holdings in financial shares as of Aug. 31, including American International Group Inc. (AIG) and Bank of America Corp. (BAC), Morningstar data show. Financials declined about 17% last year, making it the worst-performing group in the S&P 500.
Sears was the sixth-worst performer in the S&P 500, two ranks ahead of BofA, which is the fourth-worst stock and the Fairholme Fund's fifth-largest holding, according to data compiled by Bloomberg.
Mr. Lampert, who along with his hedge fund owns 60% of Sears, has presided over 18 consecutive quarters of declining sales.
