At The Motley Fool, we understand that it often pays to zig when Wall Street zags, but that doesn't mean that we don't pay attention to what leading fund managers are buying and selling. And funds that aren't always in lockstep with the broader market can be a particularly valuable source of insight.

Every quarter, fund managers overseeing more than $100 million must disclose their quarter-end holdings publicly by filing Securities and Exchange Commission Form 13-F. The form lists all U.S.-traded securities the manager held at the end of the quarter. Although the form doesn't disclose the manager's short positions or the manager's intraquarter trades, it can shine a bright light on his or her "long" stock bets.

Q3 2011 update
Bruce Berkowitz founded Fairholme Capital Management, which today oversees three mutual funds of interest: the flagship Fairholme Fund (FAIRX), which seeks long-term growth of capital; the Fairholme Focused Income Fund (FOCIX), which seeks current income; and the Fairholme Allocation Fund (FAAFX), which seeks long-term total return. The funds are all rather focused, each owning less than two dozen holdings, instead of the hundreds that many funds own. The Fairholme fund has many admirers, and Berkowitz was named Morningstar's fund manager of the decade. But the fund has faltered a bit recently, having made some seemingly risky big bets.

The total market value of Fairholme Capital Management's disclosed equity holdings as of Sept. 30 -- the latest quarter for which data is available -- was $8.2 billion. Fairholme's 10 largest positions and associated changes in number of shares held were:

American International Group (NYSE: AIG) -- reduced 1.6%.
Sears Holdings (Nasdaq: SHLD) -- reduced 0.7%.
Bank of America (NYSE: BAC) -- increased 5.4%.
Citigroup (NYSE: C) -- reduced 5.6%.
Brookfield Asset Management (NYSE: BAM) -- reduced 18.4%.
CIT Group (NYSE: CIT) -- reduced 0.2%.
Berkshire Hathaway (NYSE: BRK-B) -- reduced 21.6%.
Berkshire Hathaway (NYSE: BRK-A) -- increased 0.7%.
Leucadia National (NYSE: LUK) -- reduced 1.2%.
St. Joe (NYSE: JOE) -- reduced 0.6%.

A lot of reductions aren't surprising, given that the once high-flying flagship fund, Fairholme, has been struggling lately. Berkowitz's longtime colleague Charlie Fernandez resigned recently, too. Such events tend to send some shareholders packing, taking their money with them, and requiring the liquidation of some stock to cover withdrawals.

Meanwhile, though, Berkowitz has been busy making some trades. During the quarter, Fairholme Capital Management also increased its position in MBIA (NYSE: MBI). Among the stocks that it reduced its exposure to were Goldman Sachs and Regions Financial (NYSE: RF). Also, it sold out of Morgan Stanley, Eli Lilly, and RSC Holdings entirely.

Regions Financial has been turning itself around recently, improving its credit quality and posting solid numbers. (Its portfolio is far from risk-free, though.) Mortgage insurer MBIA has been working on improving its condition, too, settling collateralized debt obligations and straightening out its balance sheet.

Recent winner
Fairholme hasn't enjoyed many winners lately. Royal Dutch Shell lost 12% in the third quarter, which was less than the S&P 500's 14% loss. Bulls are happy to see it expanding its production capacity significantly and growing its natural gas business, especially internationally. The company has a four-star rating (out of five stars) at Motley Fool CAPS.

Recent loser
Bank of America didn't do so well, dropping more than 44%. It may look enticing these days, with a seemingly low valuation, but my colleague Rich Smith reminds us that it and many of its peers carry some big risks -- especially if the situation in Europe gets worse. Bank of America has improved its credit quality, but it has more work to do. The company has a three-star rating on Motley Fool CAPS.

New bets
New additions included Telefonica (NYSE: TEF) and Banco Santander (NYSE: STD), both big operators in Spain, Telefonica in telecom and Banco Santander in banking. But while that might worry you due to Europe's recent financial issues, know that each also has considerable operations elsewhere. Telefonica is heavily involved in Latin America, while Banco Santander is in the United Kingdom, Brazil, and the U.S., among other places. Telefonica has a five-star rating at Motley Fool CAPS, while Banco Santander has a three-star CAPS rating.

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13-F forms can be great places to find intriguing candidates for our portfolios.

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