07 Aug 2014 Fairholme Fund 2014 Semi Annual Report ( Portfolio )

Brief portfolio commentary:

AIG common stock and warrants are nearly one-half the value of the Fund’s portfolio due to appreciation of these securities – even after realizing profits on the sale of millions of shares of AIG common stock.

Fannie Mae and Freddie Mac preferred stocks and common shares constitute approximately 15% of the Fund’s portfolio. We believe that the two companies may be the most important financial institutions in the United States – perhaps the world – and directly support housing affordability and accessibility, including the uniquely American 30-year fixed-rate mortgage. They are a major reason why our country did not enter a second Great Depression, and are proving to be the most successful taxpayer investments of the Great Recession.

Bank of America common stock is the Fund’s third largest position. Acquiring and then fixing Countrywide Financial has cost the bank tens of billions. Finishing the task will, in our view, allow much more to drop to the bank’s bottom line.

Sears remains the Fund’s least successful investment, yet has the highest potential based on our estimates of tangible values.

Tailwinds are building at St. Joe!

Patience will pay.

Onward and upward,

Bruce R. Berkowitz