Several of the insurance stocks that the fund started with still play a central role in the portfolio today. One of them, Berkshire Hathaway, comes under the firm's umbrella of financially solid companies with strong leaders whose stock sells below their intrinsic value. The holding company's solid, core insurance business boasts a strong underwriting discipline that has helped it weather the Florida hurricane disasters better than its competitors, and a good economy has buoyed holdings in cyclical businesses such as furniture and building materials. Yet despite a long track record of success and a "Fort Knox" balance sheet, says Berkowitz, investors still do not fully appreciate the company.

According to Fairholme estimates, Berkshire Hathaway's A shares sell well below the high end of their fair value range of $135,000 a share. But the eventual outcome of the holding company's mission to successfully deploy some $40 billion in cash it has tucked away has raised concern among some investors. Although Warren Buffet hasn't made any new acquisitions in more than a year, and remains unenthusiastic about the stock and bond markets, co-manager Keith Trauner believes "there is no reason to think he won't deploy cash successfully, as he has in the past." Berkowitz concurs, and observes that "as interest rates get higher, one would expect him to put some of that cash into longer-term bonds."

Auto insurer Mercury General, another long-time holding, also falls into the category of well-run, undervalued companies with strong leadership. Thanks to careful underwriting standards that reduce fraud while keeping premiums competitive, the company has been able to survive heavy earthquake-related claims and maintain strong growth and profitability. Based in California, Mercury General is expanding nationwide and now has a presence in other states, including Illinois, Oklahoma, Virginia and New Jersey. According to Berkowitz, its chief executive officer and founder, George Joseph, is "a careful, methodical genius who knows every pothole in California."

But with Joseph in his eighties, and the Oracle of Omaha in his mid-70s, the question of who will fill their shoes becomes inevitable. "Strong managers build strong corporate cultures that are built to last," says Trauner. "It is silly to think that someone who has done such a good job running a company has not put a considerable amount of time into succession planning."

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