Maintaining a Concentrated Portfolio Without Disavowing Diversification: An Expert Portfolio Manager Discusses Investing in Berkshire Hathaway (BRK-A)

Wall Street Transcript

67 WALL STREET, New York - April 2, 2013 - The Wall Street Transcript has just published its Investing in Gold and Value for Downside Protection Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Value Investing - Long-Term Investing - High Quality Companies - Global Investing - Investment Strategies - Large Cap Investing - Longer-Term Investing - High Quality Companies - Investing in Gold - Long-Term Value Conservation - Precious Metals

Companies include: Berkshire Hathaway Inc. (BRK-A), Newmont Mining Corp. (NEM), Barrick Gold Corporation (ABX), Kinross Gold Corporation (KGC), Mercury General Corp. (MCY), Pepsico, Inc. (PEP), Johnson & Johnson (JNJ), General Electric Co. (GE), Microsoft Corporation (MSFT), The Coca-Cola Company (KO), Citigroup, Inc. (C), Leucadia National Corp. (LUK), Exxon Mobil Corp. (XOM) and many more.

In the following excerpt from the Investing in Gold and Value for Downside Protection Report, an expert portfolio manager discusses his investment philosophy and his portfolio-construction strategy:

TWST: You said you maintain a concentrated portfolio. What about diversification?

Mr. Bloomstran: We really think the unoriginal but unconventional notion of putting all your eggs in one basket and watching that basket closely makes a lot of sense. We don't at all set out with an intention to take on risk by not diversifying. Risk to us is permanent loss of capital. The adage of risk and return being correlated is misguided. Most that take on our definition of risk invariably lose money. Occasionally, and not frequently, opportunities arise that have huge upside reward and no or little downside risk, using permanent loss as the measure of risk.

You need to be in a position to take advantage of that. Sometimes you build a big position slowly as the price drifts downward but the fundamentals remain positive. Other times, big low-risk, high-reward opportunities appear all at once. Only from experience and cumulative learning can you be ready for those.

While we don't disavow diversification, Berkshire would be a rare exception as a really, really big position, simply because we think the assets within the business itself already are diversified and because they are of such high quality in terms of positive returns on capital, the capital structure of the business itself and the discount to fair value.

By discount to fair value, I mean price is really important. Really high business quality coupled with a price below fair value, which the stock market does tend to give you from time to time. That dual margin of safety lets us sleep at night, and lends itself to a lack of diversification. There are not that many opportunities to put a lot of money into an asset or a situation where you have both of those margins of safety working for you. When you get the dual margins, you need to take advantage. More often than not you do get a chance to buy things because there is a problem and our job is to discern whether the problem is...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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