Should you invest half your money in the same stock?

Most financial planners would tell you that's a crazy idea, that you need to be more "diversified." But that's what Allan Mecham at Arlington Value -- aka the 400% Man -- has just done.

Mecham, whose stellar returns were highlighted in the March edition of Smart Money, tells his investors that last year he levered up the fund and has invested half the money in Warren Buffett's Berkshire Hathaway.

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"Able to borrow at around 1.5%, we levered (Berkshire) into a 50%+ position," he wrote in his annual letter to shareholders. "Though not advocates of leverage, we believe the low cost and modest amount, combined with [Berkshire's] iron-clad safety and cheap price, makes our action sensible."

There is some method to the madness. Mecham, a long-term Buffett disciple, argues that Berkshire Hathaway stock, on its own, "provides ample diversity, with exposure to disparate businesses (more than 70), sectors, and asset allocations." Berkshire's assets include a ton of cash-generative businesses, a book of blue-chip public stocks valued at more than $75 billion, and nearly $40 billion in cash, he says.

Short-term gains are irrelevant, but Mecham built up the huge Berkshire Hathaway position before the announcement, last September, that Berkshire would start buying back stock.

Since then stock has zoomed about 16%, from around $105,000 to $122,000.

No one is suggesting you should follow suit -- even if you could borrow at 1.5%. But Mecham's track record makes his moves worth noting. He's trounced the market since launching Arlington in 1999, posting gains of more than 400% after costs. Arlington's five-year return through 2011 averages 18.7% net of fees, while the Standard & Poor's 500 has lost ground.

Last year, Mecham reports, the fund gained 1.4% net of fees -- actually underperforming the S&P 500, a rare event, by just over half a percentage point. His existing holdings in Berkshire, which was slightly down overall in 2011, were among the reasons.

Mecham's annual letter offers a rare glimpse into his portfolio.

In addition to Berkshire Hathaway, he says he is also holding positions in SandRidge Energy (SD), XPO Logistics, Loews, and two "unnamed" financial stocks he scooped up last year after they fell more than 50%. (My imagination runs riot. Bank of America?).

Of SandRidge, Mecham likes its "enviable acreage holdings," a low-risk high-return drilling program, low and stable operating costs, and a screamingly cheap stock price." SandRidge stock hit $68 during the oil boom in 2008 -- compared to $8.42, or 37 times forecast earnings, now.

XPO Logistics (XPO), parent of emergency shipments company Express-1, is also in freight forwarding and freight brokerage. New management wants to buy up small competitors and build economies of scale. The company just raised $126 million at $15.75 a share. Mecham thinks the fund-raising was unneeded, but sees "enormous potential" for attractive growth going well into the future, as the company snaps up mom-andp-op operators in a potential $200 billion market. "XPO employs an asset-light business model that generates high returns on invested capital and spins off free cash flow to owners in nearly all economic environments," he writes. The shares, $17, are 0.8 times annual sales.

As for Loews (L), it's a diversified holding company which owns energy-related businesses, an insurance company, and Loews' luxury hotels. Mecham calls it "a low-risk proposition with significant upside." The stock is twelve times forecast earnings, but with a meager dividend yield of 0.65%.

Make of these ideas what you will. There are no guarantees that Allan Mecham's stock picks will do better than the market, bonds or a fistful of gold bullion. As ever, you pays your money and you takes your choice.