White Mountains Insurance Group (WTM)

[Alekbaylee]

Y'all,

 

Anybody looking at WTM? Selling for less than 80% of stated book value at Sept. 30 (406).

 

I'm buying some.

 

Alek

[Partner24]

Yes, but since Jack is gone, I like it less. Prefer FFH and MKL.

 

Cheers!

[prevalou]

Jack is gone but he is a shareholder, trust Barrette and gives him his voting rights.

[Partner24]

"Jack is gone but he is a shareholder, trust Barrette and gives him his voting rights"

 

Yes, I know. But that being said, even if he trust him and that's ok to do that, Barrette is not Jack.

 

But that being said, even when Jack was there, I was preferring MKL and FFH anyway.

 

Cheers!

[benhacker]

Check out the option grants for the CEO in '06 and '07 (I think).  From memory, I think the grants were 1-2% of TOTAL OUTSTANDING shares.

 

I can't bring myself to buy this thing after seeing that.  I think that's why Buffett got out... too much incentive to reach for yield with the out of money payday lingering around.

 

No position, but the company is obviously cheap.

 

Ben

[philassor]

Peter, you seem to have a good understanding of the company. I have not dug into the financials deeply but it appears that wtm is sellling at a discount of maybe 30% of a conservative estimate of its intrinsic value. Do you share that view and do you think that its discount is due perhaps to what cialdini calls "pluralistic ignorance"?

 

actually this is one of the most shareholder friendly grants you will ever see. the options were granted at a 10% premium and have an escalation clause. Buffett would love this...Buffett got out because wtm was a "workout" for him. he helped them finance an acquisiton and it didn't make sense to hold that much control  in a company he competes with. As a shareholder I will be extremely happy if Barrette gets his payday. I heard on a WTM shareholder meeting tape Jack himself said they gave ceo this option to give him inventive to make JACK rich. He approved it.

 

 

Mr. Barrette did not receive any new long-term incentives in 2008. On January 20, 2007, Mr. Barrette was granted 200,000 seven-year options that vest in equal installments over five years and that have an initial exercise price of $650 per share that escalates each year by 5% less the annual regular dividend rate. The grant date fair value of the options was $27,158,834. This original amount is being amortized ratably over the vesting period in accordance with FAS 123® and does not represent the current value of the options. Although no new grants were made to Mr. Barrette in 2008, under applicable SEC rules the Summary Compensation Table is required to reflect the 2008 financial statement compensation expense relating to the grant of options made to Mr. Barrette in 2007, which is based on the grant date value of the options, not the current value. See "Outstanding Equity Awards at Fiscal Year End." For a discussion of the assumptions used in calculating the fair value of the awards under FAS 123®, see Note 12.

[benhacker]

@ Peter,

 

I think the 'structure' of the options grant was incredibly shareholder friendly.  I think the size of the grant was despicable.

 

Don't let the former blind you to the latter... incentives are all that matter as Munger implies, look out what behavior the companies you own are incentivizing.  Granting massive option grants at big premiums to book value rewards excessive risk taking.  In my opinion.

 

Ben

[prevalou]

another reason why it's cheap: WTM made a mistake at the beginning of 2008, buying back a lot of their own shares. 10 months later they had to sell a lot of their stock portfolio at the bottom of the market (anti Fairfax strategy).

[prevalou]

what about their japan life reinsurance business? It was bleeding, they tried to get rid of it (it's in run off) but could'nt.It seems nobody is interested in this business.