Robert Goldfarb and David Poppe, presidents of Ruane, Cunniff & Goldfarb and portfolio managers of Sequoia (SEQUX), recently answered our questions on the virtues of a concentrated portfolio, the challenges that pharmaceutical companies will continue to face in light of government fiscal problems, and how proper long-term company analyses can lead to exceptional investments. They also stated that the universe of quality businesses has moved away from its all-time lows and discussed specific opportunities currently found in the retail sector.

1. You steered the portfolio away from a high concentration effort to a more diversified approach. What led you to this strategy change? Are you concerned that a more diversified approach could potentially dilute the portfolio?

We still believe strongly in the virtues of concentration. The best way to outperform an index of stocks is to own a concentrated portfolio of great businesses purchased at reasonable valuations. Our views on this subject haven't changed in 40 years. If you exclude Berkshire Hathaway (BRK.A) (BRK.B), our concentration in our next five largest holdings is as high today as it has been through most of our history. But we came to view a 30% weighting in Berkshire Hathaway as inappropriate, largely because of Warren Buffett's acknowledgement that the law of large numbers would cause Berkshire's rate of earnings growth to slow materially in the future. We were fortunate to be able to reduce Berkshire to 12% in 2010 through two significant sales at reasonable prices when the company entered the Standard & Poor's 500 Index and the Russell 2000 Index, which forced index funds to buy the stock irrespective of price. Our current weighting in Berkshire is slightly more than 10%. Because Berkshire is selling at the same price at which we sold it nearly two years ago and Warren Buffett has significantly increased the company's intrinsic value through massive deployment of capital, we are extremely comfortable with this weighting and with Berkshire's prospects.