Sometimes, when looking for good stocks to own, all you have to do is follow where good management goes. In the case of White Mountains (NYSE: WTM), the management is exceptional. So impressed was Warren Buffett by the management, Berkshire (NYSE: BRKb) purchased a 16% stake at White Mountains in the middle of May 2004 right around the time when the stock took a sharp dip trading at $476/share.

The Man Buffett Admires and Follows Everywhere
Buffett's purchase of a sizable stake at White Mountains is hardly a surprise move. As a matter of fact, this traces all the way back to 1976 when Jack Byrne took over the helm at GEICO. As Buffett personally put it in his 1985 letter to shareholders, "Jack's performance in reviving GEICO from near-bankruptcy was truly extraordinary, and his work resulted in enormous gains for Berkshire."

In the middle of 1985, Jack left GEICO to head the Fireman's Fund. Because Buffett was so enchanted by Jack's ability, he followed where Jack went and acquired 7% ownership of the Fireman's Fund. It's important to realize that Jack left GEICO in equally exceptional good hands — Bill Synder and legendary investor and allegedly Buffett's replacement, Lou Simpson.

Buffett's admiration for Jack Byrne did not waver a bit. Ten years after Jack left GEICO, Buffett is still full of praises for Jack in his 1995 letter to shareholders.

Because I believed both in Jack and in GEICO's fundamental competitive strength, Berkshire purchased a large interest in the company during the second half of 1976, and also made smaller purchases later. By yearend 1980, we had put $45.7 million into GEICO and owned 33.3% of its shares. During the next 15 years, we did not make further purchases. Our interest in the company, nonetheless, grew to about 50% because it was a big repurchaser of its own shares.

Why You Should Admire Jack Byrne Too?
Jack Byrne has been dabbling in the insurance industry at a young age. After school, he helped his father who owned a small insurance agency. Following his father's advice, he worked as an actuarial assistant for Travelers. An actuarial is responsible for determining pricing of policies to cover risks and / or loss reserves to pay claims. It requires solid math and analytical skills. And Jack has no shortage in neither. He earned a bachelor's degree in mathematics from Rutgers University and a master's degree also in mathematics. You can be assured that the guy knows how to count.

After ten years at Travelers, Jack worked his way up to executive vice president in charge of Travelers' entire life insurance operation. He was offered the president's position but he declined and took up GEICO's offer to become CEO at a troubled company.

Back then, Buffett has been trading in and out of GEICO, but never made it one of his permanent holdings. After Jack took over, Jack fired almost half the work force, closed 100 offices, raised prices and shut down unprofitable businesses. That's when Buffett started to take notice and acquired $4 million worth of GEICO shares. You can obsess about Jack Byrne here.

Today, Jack serves as Chairman of the Executive Committee of the Board of Directors at White Mountains. He and his family trusts own a total of a little over 1.5 million shares of White Mountains despite recent diversification move in March 2005. Serving as President and CEO at White Mountains currently is Raymond Barrette, the man who worked with Jack back while Jack's running Fireman's Fund.

White Mountains Fundamentals
White Mountains is comprised of eight subsidiaries operating in property and casualty insurance and reinsurance businesses. OneBeacon, the largest subsidiary, provides specialty, personal and commerical lines of insurance. Esurance, as many of you may have heard of, provides personal auto insurance.

AutoOne Insurance, another White Mountains subsidiary, operates primarily in the Assigned Risk market. Because auto insurance is required and some drivers are so risky no insurance provider would insure them, the state has to assign these risks to insurance providers and the insurance providers must accept them. This is where AutoOne comes in and takes on these assigned risks on behalf of the insurance providers. AutoOne is referred to as a Limited Assignment Distribution (LAD) carrier. In other words, the insurance providers can now outsource their assigned risks to AutoOne at a price. Clearly, AutoOne has found a niche where competition is not as fierce. AutoOne is the second largest LAD carrier in New York.

White Mountains Re Group consisting of Folksamerica Reinsurance Company, Sirius International Insurance Group, White Mountains Underwriting Limited and Folksamerica Re Solutions operate in the reinsurance business. Aside from its subsidiaries, White Mountains also owns significant interests in two affiliates: 10% of Montpelier Re (NYSE: MRH) and 19% of Symetra Financial, one of the few privately held companies who makes its financials available to the public.

Looking at the numbers, White Mountains' performance is not exactly stellar for the past two years, largely due to hits from hurriances Charley, Frances and Ivan in 2004. And this year's losses from Katrina and Rita are bound to challenge investors faith in the company.

However, as a value investor, you must look past the temporary setback caused by these catastrophes as management do. Despite the losses, White Mountains managed to increase its book value per share every year for the past five years on an average of 12.35% per year. On top of that, White Mountains has been paying regular dividends since 1999.

With investors losing confidence in the insurance industry and the market in general, opportunities for acquisitions abound. Smaller insurers that run the risks of going out of business due to insufficient loss reserves will be looking to get bailed out by larger companies. Larger companies will be able to snap up the smaller players at discount prices. And along with that they gain market share. Besides, after the storms, White Mountains get to charge a higher premium and improve its profit margins.

Is White Mountains A Buy?
So we get it. White Mountains' the bomb. Where do I sign up? Whoa. Hold it. Let's see if White Mountains is selling at a discount first. Even the best company can prove to be a bad investment if you purchased its stock when it's overvalued.

Unfortunately, estimating White Mountains growth is not easy due to the fact that their growth pattern is inconsistent. However, the past five years, it has grown 110% a year. Analysts estimate the company will grow by 21% next year. I've decided to go with a more conservative estimate of 16%. With earnings per share of $44.29 (ttm), I believe White Mountains is a buy at $566/share. Currently, the stock is trading at $600/share. Perhaps the market's reaction due to Katrina and Rita has been priced into the stock. But nobody knows where the stock price is headed when the company announces its latest quarter earnings.

Conclusion
You must have noticed that I spent almost 70% of this article talking about Jack Byrne. It's only because good management is so important it can dismiss all conclusions you draw from numbers. Remember how Jack Byrne turned GEICO around in 1975. Obviously, if you just looked at GEICO's numbers at that time and didn't know who Jack Byrne was, you wouldn't have known GEICO would be where it is today. As a matter of fact, management is so important I've decided to write a full article about it later.

Oh, did I mention Markel (NYSE: MKL) owns shares of White Mountains as well? So does the Fairholme Fund (FAIRX) that returned 165% in the past five years. Fairholme Fund got a lot of media attention this year. And its founder, Bruce Berkowitz, is a member of the board of directors of White Mountains.

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