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Bruce Berkowitz launched Fairholme in 1999. It earned him the title of "Stock Manager of the Decade" from Morningstar and was a $19 billion mutual fund at the end of 2010. Berkowitz's Fairholme Fund managed to return 1.02% per month between September 2000 and the end of 2010. This compounds to an average annual return of 12.9% for the past 10 years. In 2010, Fairholme Fund returned 25.5%, beating the SPY by more than 10 percentage points. In fact, Berkowitz managed to beat the market every year except in 2003. Unfortunately, he isn’t performing well this year, and his assets under management have declined to $11 billion.

We believe that by imitating the stock picks of the smartest investors, such as Bruce Berkowitz and corporate insiders, investors are more likely to beat the market. Below we compiled a list of stocks both Berkowitz and insiders love. The insiders column shows the number of unique insiders purchasing their companies’ stocks since the beginning of March.

Company

Ticker

Value (x1,000)

Insiders

YTD Return

AMERICAN INT'L GROUP

(NYSE:AIG)

3024784

1

-16.1%

SEARS HOLDINGS CORP

(NASDAQ:SHLD)

1170236

1

-18.3%

BANK OF AMERICA

(NYSE:BAC)

1092139

1

-37.0%

CIT GROUP

(NYSE:CIT)

859207

2

-22.9%

REGIONS FINANCIAL

(NYSE:RF)

768110

4

-38.8%

MBIA INC

(NYSE:MBI)

406972

4

-1.7%

MORGAN STANLEY

(NYSE:MS)

275308

5

-34.2%

JEFFERIES GROUP

(JEF)

84124

3

-31.4%

ASSURED GUARANTY LTD

(NYSE:AGO)

23676

4

-33.4%

WINTHROP REALTY TR

(NYSE:FUR)

15993

5

-23.5%

Bruce Berkowitz’s largest position with an insider purchase is American International Group Inc. Bruce Berkowitz had $3 billion in AIG and one insider, Don Cornwell, purchased a total of 2,500 shares of the stock at the end May. Berkowitz largely increased his position in AIG by 133% in the second quarter. AIG is an American multinational insurance corporation. AIG has a market cap of $46.27B and a P/E ratio of 4.65. It lost 49.42% since the beginning of the year, and lost 16.10% since the end of June.

In the second quarter, Berkowitz initiated a brand new $84 million Jefferies Group Inc position. Jefferies Group Inc is a global securities and investment banking firm that has served companies and investors for nearly 50 years. It has a market cap of $2.86B and a P/E ratio of 9.13. JEF has a loss of 47.81% since the beginning of the year, and 31.38% since the end of June. There are three insiders, Ian Cumming, Joseph Steinberg and Leucadia National, that bought 5,154,639 shares of JEF on Apr 8 respectively. There haven’t been any insider purchases after the huge decline in this stock.

Morgan Stanley has the biggest number of insider purchases since March. Five insiders bought the stock since then (check out the list of the insiders purchased MS here). Those insiders bought a total of 185,000 shares at the beginning of August. Unfortunately there haven’t been any other purchases since then, despite a 30+% additional decline in the stock price.

Morgan Stanley is a global financial services firm that, through its subsidiaries and affiliates, provides its products and services to customers, including corporations, governments, financial institutions and individuals. It has a market cap of $26.64B and suffered a huge loss this year. MS lost 46.13% since the beginning of the year and 34.15% since the end of the second quarter. Luckily, Berkowitz decreased his position in MS by 69% during the second quarter and held $275 million position at the end of June.

Among all the stocks Berkowitz and insiders like, MBI, AIG, Sears, CIT Group and Winthrop achieved the highest return since the end of June, while Regions Financial, Bank of America, Morgan Stanley, Assured Guaranty and Jefferies Group performed worst. Although some of the stocks picked by Berkowitz and insiders underperformed the market, we still believe that investors can outperform the market over the long-term by focusing on the stock picks of these smart and connected investors.

Source: 10 Stocks Bruce Berkowitz And Insiders Love