By Scott Cendrowski
April 2, 2012

FORTUNE  — To say Bruce Berkowitz of the $8-billion Fairholme Fund faced adversity last year is an understatement.

“Time to Sell Fairholme?” asked the Wall Street Journal on Nov. 6 (Its answer: yes).

“Not to pick on Bruce Berkowitz too much,” read a column on Dec. 8, “but hubris is such a dangerous trait in a fund manager.”

“Investors always seek to buy great investments,” MarketWatch remarked about Fairholme in October, “but often have to come to the realization that what’s in their portfolio has crossed a line, and morphed from something they trust to something they should get rid of.”

Popular belief held that Morningstar’s U.S. Stock Manager of the Decade had lost his touch amid losses totaling -32.5% by year’s end. Fortune got into the act, too. In a column appearing in the magazine’s Dec. 26 issue, Allan Sloan recounted how his wonderful ride with Fairholme — he bought shares between 2004 to early 2006, then again in 2010, riding them to a sizable gain — came to a screeching halt in 2011. Sloan said he sold off his entire stake in October. (He told me right after, with a hearty laugh, that Fairholme would surely rebound after he sold out.)

Fairholme (FAIRX) hasn’t just rebounded; it’s scorched past every recent doubter. As of Friday, which ended the first quarter, Fairholme had gained 30% in 2012. To put that in perspective, its rise is 18 percentage points better than the S&P 500 Index and 19 percentage points better than Fairholme’s competitors, according to Morningstar. Fairholme still trails the index over a one-year horizon, but this year’s rebound pads its spectacular 9% annualized returns over the past 10 years.

Amid Fairholme’s rise, shareholders still can’t decide on Berkowitz. Investors pulled out an estimated $570 million in the first two months of 2012, according to Morningstar, even as the fund’s value climbed nearly every trading day. In 2011, Fairholme investors yanked an estimated $6.8 billion, which, combined with investment losses, reduced Fairholme’s assets from $21 billion to $7 billion.

The story is a familiar one: investors pile into a hot fund only to flee at the wrong time. Consider Morningstar’s numbers on the average Fairholme investor’s return this past year. In the 12-month period ending February 29th, the fund fell 14.5% yet the average investor lost a whopping 21.4% — almost 50% worse. Sure, Fairholme has struggled. But shareholders buying near its peak in early 2011 never gave it a chance.

The thing about short-term performance over a quarter or even a year is that it doesn’t really matter. Yes, it makes headlines and drives many investors to buy or sell. But real investment gains are earned over the long-term, judged by decades. It’s impossible to call Berkowitz a genius or an idiot by recent returns. (In full disclosure, I bought Fairholme for the first time last year in my 401(k).)

Yet it’s worth noting Fairholme’s streak this year because of the beating Berkowitz took last year from investors and the press. The press couldn’t understand it. Fairholme held huge positions in AIG (AIG), Sears Holdings (SHLD), Bank of America (BAC), and Citigroup (C) — all hated stocks in 2011. Bank of America, for instance, fell 58% during the year. Berkowitz delivered the same refrain over and over: he was staying put. He did admit to buying financials too soon, joking that he suffered from a bad case of “premature accumulation.” But he didn’t cave into the pressure to sell, like at least one other notable investor did. Instead, he concentrated Fairholme’s portfolio even more. Now AIG common shares and warrants comprise 26% of the fund, as of its latest filing, compared to 11% to start last year.

How horrendous did Berkowitz’s portfolio look last year? Here’s a list of his top six stock holdings and their performance in 2011 and year-to-date 2012:

2011 YTD 2012 (-Mar. 29)
AIG -51.94% 29.05%
AIA Group 11.47 15.88
Sears Holdings -55.98 112.56
CIT Group -25.97 18.33
Berkshire Hathaway A -4.73 6.38
Bank of America -58.13 71.53

What many investors missed over the past year is that Berkowitz has traveled this road before, albeit without the same multi-billion dollar portfolio, and come out successfully. In the early ‘90s, as a portfolio manager at Shearson Lehman Brothers, he told an interviewer that he had invested 33% of his liquid net worth (basically everything except for his home) in Wells Fargo stock. At the time, short sellers were circling the bank, expecting it to collapse amid a California real estate bust. Instead, Wells rose nine-fold over the next nine-years, earning boatloads for Berkowitz and his clients.

Which isn’t to say Fairholme’s portfolio will follow the same upward march today. How Fairholme performs from here is anybody’s guess. But put simply, Berkowitz has been here before. Again, he’s not wavering.

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