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Investing Specialists

Berkshire Hathaway Whittles Portfolio Down Further

Forced and unforced sales are building up cash at this Ultimate Stock-Picker.

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By Drew Woodbury | Stock Analyst

When we relaunched Ultimate Stock-Pickers nearly two years ago, we made a point of including a few insurance companies in our list of top managers because, unlike their peers in the mutual fund business, portfolio managers at insurance companies are not impacted by investor redemptions during weak market environments. They also tend to be a bit more long-term oriented than fund managers, investing their portfolios according to the time horizon and payout profiles associated with the products lines that are underwritten by their firms. While fixed income tends to dominate the average insurance company's investment portfolio, as the asset class provides a steady stream of cash flows and (in most markets) less risk than equities, there is always room for stock holdings, which provide the potential for capital appreciation.

Of the four insurance firms in our Investment Management Roster-- Berkshire Hathaway (BRK.A)(BRK.B),  Markel (MKL),  Alleghany (Y) and  Fairfax Financial (FRFHF)-- Berkshire is probably the best known, owing to the cult-like status that Warren Buffett and Charlie Munger have with investors. Buffett has been involved in Berkshire's investment portfolio for more than forty years, while Munger has been contributing to investment decisions at the firm for nearly as long. This type of longevity is rare among asset managers, and speaks to the success that Berkshire has had finding investments that not only meet the needs of its business, but which allow Buffett and Munger to demonstrate their investing acumen. Having two well-regarded investment managers would be a boon for any firm, but Berkshire was fortunate enough to have a third successful stock picker in Lou Simpson, who oversaw the portfolio at the company's GEICO auto insurance subsidiary for more than thirty years.

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The Morningstar Ultimate Stock-Pickers Team does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.