[William Ruane] subscribes to [Warren Buffett]'s philosophy on diversification: Forget it. Buffett likes to quote Mae West, who said, "Too much of a good thing can be wonderful." There aren't that many great stocks in the world, so buy lots of the few you find. So Sequoia owns huge chunks of Berkshire itself; Fifth Third Bancorp (FITB); Progressive (PGR), an insurance company; TJX (TJX), discount retailer; and Fastenal (FAST), seller of screws, nuts and bolts; and not much else.
In my Feb. 23 column, I showed how individual investors can gather information and evaluate a stock for possible purchase. I used as the main example a Louisiana-based company called Shaw Group (SGR), which makes pipes for power plants. Shaw had taken a huge tumble, losing four-fifths of its value since mid-2001. Based on its profits of the preceding 12 months, however, the stock was trading at a price-to-earnings ratio of just 5. "Shaw is risky, no doubt," I wrote, "but the price reflects that risk -- and then some." In the end, I said that my research indicated that Shaw was worth buying, and, as I indicated I would, I bought some shares a few days after my article came out.
On the Friday before the piece appeared, Shaw closed at $10.71 a share. On Monday, it shot up to $11.50. Then, for eight of the next nine trading days, it declined, hitting $8.58 on March 7. During this period, I received loads of e-mails, most of them mildly chiding me for my Shavian enthusiasm and claiming that I had omitted from my story key information about the company's debt load. I was also vilified (and, occasionally, defended) in Yahoo chat rooms, where debate over Shaw was hot and heavy.
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