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Bruce Berkowitz was recently declared the ‘Stock Manager of the Decade’ by Morningstar. He is the founder of Fairholme Fund. Since its inception in 1999, Fairholme has managed to beat the market every year except 2003. It is now an approximately $14 billion dollar mutual fund. In 2010, Berkowitz’s stock picks returned 25.5%, beating the SPY by 10 percentage points. Unfortunately, this year Fairholme has lost 27.1% so far.

Bruce Berkowitz invests heavily in the financial sector of the economy. More than 75% of Fairholme’s current 13F portfolio consists of companies belonging to that sector. Currently, Bruce Berkowitz is extremely bullish about Bank of America (NYSE:BAC). Unfortunately, in the short term, BofA is losing a lot of support among hedge fund managers. John Paulson sold half of his nearly $1.5 billion stake during the second quarter (see Paulson’s latest transactions here).

During the second quarter, Berkowitz sold off 11 companies among which the major ones were Cisco Systems (NASDAQ:CSCO), Spirit Aerosystems Holdings (NYSE:SPR), and Verizon Communications (NYSE:VZ). Since June, Cisco gained less than 2%, Spirit Aerosystems lost 23%, and Verizon lost 3%. Berkowitz had just purchased Cisco in the first quarter of 2011.

Moreover he reduced his Morgan Stanley (NYSE:MS) holdings by 69% and RSC Holdings (NYSE:RRR) by 99%. Since the end of June, Morgan Stanley lost 26% and RSC Holdings lost 30%. Morgan Stanley was Berkowitz's 5th largest holding till the beginning of the second quarter. Here are Bruce Berkowitz’s top stock picks at the end of June:

Company

Ticker

Value (x1000)

Activity

Return Since June

AMERICAN INTL GROUP

AIG

3,024,784

133%

-15%

SEARS HLDGS

SHLD

1,170,236

0%

-16%

CITIGROUP

C

1,098,792

2%

-28%

BANK OF AMERICA

BAC

1,092,139

8%

-32%

BROOKFIELD ASSET MGMT

BAM

904,529

-1%

-9%

CIT GROUP INC.

CIT

859,207

-2%

-24%

GOLDMAN SACHS

GS

798,853

-10%

-12%

REGIONS FINANCIAL

RF

768,110

0%

-27%

BERKSHIRE HATHAWAY

BRK.B

729,634

20%

-6%

LEUCADIA NATL CORP

LUK

638,199

-1%

-15%

ST JOE CO

JOE

538,399

0%

-18%

BERKSHIRE HATHAWAY

BRK.A

466,974

0%

-6%

MBIA INC

MBI

406,972

14%

-24%

MORGAN STANLEY

MS

275,308

-69%

-26%

JEFFERIES GROUP

JEF

84,124

NEW

-19%

ASSURED GUARANTY LTD.

AGO

23,676

NEW

-25%

WINTHROP RLTY

FUR

15,993

-18%

-20%

ELI LILLY & CO.

LLY

7,844

0%

-3%

VODAFONE GROUP

VOD

7,482

NEW

4%

RSC HOLDINGS, INC.

RRR

1,076

-99%

-30%

American Intl Group (NYSE:AIG) is the largest holding in Fairholme’s 13F portfolio. Berkowitz increased AIG by 133% during the second quarter of 2011. His stake in AIG was worth $3 billion at the end of June. It made up around 13% of Fairholme’s 13F portfolio. Since the end of June, AIG lost -15%. Michael Price’s MFP Investors added AIG to its portfolio during the second quarter (check out Michael Price’s stock picks).

Jefferies Group (JEF) lost 19% since the end of June. Berkowitz initiated a new position in JEF during the second quarter. He has around 4 million shares of the company. Ian Cumming and Joseph Steinberg’s Leucadia National has roughly 54.5 million shares of JEF. Leucadia National increased its position in the company by 10% during the second quarter (take a look at Ian Cumming and Joseph Steinberg’s latest holdings).

As mentioned before, Bruce Berkowitz is highly bullish about Bank of America (BAC). It is his fourth largest holding. During the second quarter of 2011, he increased his stake in BofA by 8%. As of now, Berkowitz has around $1 billion in Bank of America. Despite Berkowitz’s bullish claims, Bank of America has lost 32% since the end of June.

Bruce Berkowitz has not failed to outperform the market except once in 2003. Nevertheless, a bet on Bruce Berkowitz now is like a bet on financial stocks. We find this a little bit too risky at this moment.

Source: A Look at Bruce Berkowitz's Top Stock Picks