If you haven't heard of Bruce Berkowitz yet, you probably will soon. He's the manager of the acclaimed Fairholme (FAIRX) mutual fund, which sports a market-trouncing 10-year average annual return of nearly 14%. If you're a fund investor, his fund might deserve a closer look. But if you prefer investing in individual stocks, you might wonder which stocks he's pursuing.

Surprisingly, that's exactly what Berkowitz does with his own peers. "We use a lot of grapevine ideas, asking people what they've finished buying that might be interesting," he's said. "Why not look at what other great investors have found?"

Transparency's clear advantages
These days, seeing what the other guy's buying isn't even that difficult. While Berkowitz can call up many of the world's great investors and chat with them, you and I can go to any good fund's website and find a list of its top holdings (if not all of its holdings) -- as of the end of the last quarter, at least. For example, here are a few of the companies listed among the top holdings of several well-regarded funds:

Fund

Expense ratio

10-year avg. ann. return

Top holdings include

Fairholme (FAIRX)

1.01%

13.8%

Sears Holdings (NASDAQ:SHLD), Humana (NYSE:HUM), St. Joe

Calamos Growth and Income (CVTRX)

1.12%*

5.2%

Amazon.com (NASDAQ:AMZN), Infosys (NASDAQ:INFY), Halliburton (NYSE:HAL)

T. Rowe Price Mid-Cap Value (TRMCX) 

0.83%

10.8%

SYSCO (NYSE:SYY), Nexen, Southwest Airlines (NYSE:LUV)

Data: Morningstar.
*Plus a sales load of as much as 4.75%.

Whoa there, Sparky...
If you're all ready to rush out and snap up shares of these stocks, hold your horses. These picks may not be the best bargains right now.

In fact, they may not even be the companies those funds own right now. Fund holdings are only disclosed every once in a while. Even if the fund has been shedding shares ever since, you won't find out for a while. Also, not all fund managers have equal faith in various holdings. They may buy some expecting to earn a modest return in the coming year or so, with plans to sell soon after. With other stocks, they may have long-term faith in the company, hoping to double or triple their money or more over the long haul.

Still, the lists have value. Even Berkowitz himself isn't after the stocks that other managers are buying right now. (He knows they won't want to tell him, lest he start buying, too, which could drive the price up.) Instead, he asks what they've finished buying.

Buy it like Berkowitz
Once you've compiled your list of stocks recently bought or held by great managers, you'll want to do start researching your candidates. At our Motley Fool CAPS community you'll see that Sears has earned a measly one out of five stars from our 145,000-plus CAPS investors, while SYSCO sports five stars. The ratings alone can help you zero in on holdings that are likely to offer the most promise.

You can also read up on the comments left by CAPS community members about the stocks. You'll find that many of our highest-rated participants think Amazon.com is probably overvalued, while others predict it will grab more of the online purchasing market. Southwest gets high marks for its superior financials in the airline industry, but some CAPS members wonder whether it will get burned for hedging its fuel costs, should oil prices trend downward.

As you conduct your analysis, keep an eye peeled for stocks that have, among other virtues:

  • Sustainable competitive advantages (such as barriers to entry in their industry).
  • Little to no debt and ample cash.
  • Enough cash generated to cover their debt obligations.
  • Strong and ideally growing profit margins.
  • Healthy revenue and earnings growth.
  • Robust and ideally growing returns on equity, assets, and invested capital.

Branch out to new grapevines
You don't have to rely entirely on great fund managers to find compelling stock ideas. If a friend in the health-care industry enthuses about robotic surgery equipment, you can look up the major players in that field. If your teen insists on shopping at the newest, hottest retail chain at the mall, pay attention.

We can all benefit from suggestions from others -- as long as we do our own research, and make up our own minds, before we buy.

Tim Hanson has one stock that you must buy. Discover the identity of the stock that he thinks you need most.

Longtime Fool contributor Selena Maranjian owns shares of Fairholme. Sears Holdings and SYSCO are Motley Fool Inside Value selections. SYSCO is a Motley Fool Income Investor selection. The Fool owns shares of Fairholme and SYSCO. Try any of our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.