Thursday, August 14, 2008

Forbes Interview with Bruce Berkowitz

Joshua Lipton of Forbes interviews Bruce Berkowitz, the manager of the Fairholme Fund. Here's the link: "Bruce Berkowitz Stays in the Sunshine". Berkowitz has racked up a great track record while running a concentrated portfolio since founding the Fairholme Fund in 1999. The fund has only had one down year since then (2002), and was only down -1.58% that year. Berkowitz has been one of the best at following Buffett's old aphorism about "Rule Number 1" ("Don't lose the money"). I disagree with one point he makes in this interview though. Here's the relevant excerpt:

[Forbes] But investors might be worried about committing capital to pharmaceutical and managed care companies because we don't know who will be in the White House next year and what that change in administration will mean for these industries.

[Berkowitz] So there is a simple question: Who else will do it? Barack Obama talks about having health care like they have in Congress. Who does the health care in Congress? It's the HMOs. The government can only write a check. When all you can do is write a check, you can't control costs.

When the government is the only one writing a check, it doesn't need HMOs to control costs -- it can simply write a smaller check. That (along with rationing) is essentially how "single payer" systems control costs, and that is the direction in which some mainstream Democrats want to go (for example, my local Congressman, Steve Rothman, has advocated expanding Medicare to everyone). Therein lies the political risk in investing in HMOs, in my opinion.

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