A fund that once boasted one of the best long-term track records and a friendly relationship with Warren Buffett (Trades, Portfolio) found itself maimed by a series of negative developments at its top holding, Valeant Pharmaceuticals (NYSE:VRX) in recent months. The stock’s months-long plunge and Sequoia’s large exposure prompted mutual funds rating company Morningstar to place its analyst rating under review Wednesday. It also caused Sequoia’s manager to say their “credibility as investors has been damaged by this saga,” but few saw the sinkhole coming.
One of Morningstar’s primary arguments for the review of Sequoia was its portfolio’s sizable concentration in Valeant, charging managers with taking no steps to “mitigate the risks of such a large position.” Yet Sequoia had skirted traditional mutual fund diversification in the past to good result. Buffett’s company, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), ballooned to 35% of the fund in the 1990s, the New York Times reported, its only position to exceed Valeant in size. Continue Reading »