When AIG's book value and stock price are at par, Berkowitz said, he will "start to think about selling" his position or distributing shares to fund investors. Some major disasters could drive down the book value with insurance costs, he said, but "a lot of bad things could happen, and the stock still deserves to be higher."
"I expect some very good returns from AIG," he added. "I expect liquidation value is going to at least double. … That's how one dollar becomes eight after a crisis."
Fairholme's other relatively contrarian positions include Fannie Mae and Freddie Mac, as well as stagnant retailer Sears Holdings.
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The group holds a large position in Fannie and Freddie preferred shares in the belief that the companies will be returned in full to the public market. With a combined earning power of over $40 billion, Berkowitz said, they "can more than afford to give a big win to the government, taxpayers and make everybody whole in the ownership structure." (Preferred shareholders are given seniority.)
"I like the preferred because the market does perceive both Fannie and Freddie to be near death, and that makes no sense to me," he said. "You can buy the preferred at such discounts that you get unbelievable promised yields. I expect those preferreds to pay the dividends."
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Fannie and Freddie "are very valuable franchises," Berkowitz said. "They are essential to the running of our mortgage market. … Because Fannie and Freddie have a public mission, funded by private capital, they have a very unique place."
Fairholme holds nearly $1 billion of Sears. Berkowitz said its management has done a great job and that the comparables to other retailers are encouraging signs that Sears is undervalued.
"How can you have Sears selling where it is and compare it to Simon Properties? Sears has more square footage than Simon Properties," he said. "We have something that is extremely valuable. If it's anything close to having an apples-to-apples comparison, then something is very wrong. One is either very expensive or one is very cheap."
Berkowitz looks at the retailer as a value investment and will continue holding his shares.
"I still have my mini-Berkshire Hathaway model working on Sears, and I haven't been able to disprove that theory yet," he said.
(Related: JC Penney and Best Buy: A tale of two retailers)
Berkowitz explained his overall investment philosophy: "We buy companies—essential, critical, systemically important companies—that look like they're down and out. Their franchises are still intact; they're still absolutely essential to the economy, and they're going to stay."
When asked about poor performance in 2011, when Fairholme lost over 30 percent of value, Berkowitz said, "I want to give people above-average performance, and you have to pay for that with short-term volatility."