That said, the whole P&C world was up that day. Not sure why though. Whatever the reason, with WRB up at 1.55x book here, and at all-time highs, I decided to sell most of my long-held shares in the $59-$60 last week.
I've enjoyed holding a ridiculous number of shares the past 6 years, while the stock traded in the ridiculously undervalued 1.15x-1.50x book range.
But now that the stock is closer to what I deem the fair value range of 1.5x-2.0x book, I've scaled back from WRB being as much as 90% of portfolio (yes, you read that right) to a mere regular sized holding of 20%.
I'm a little bummed about the whole thing, as I would have loved to have ridden an undervalued WRB for many more years like the past 6. And yet, I'm a little relieved to be back to a large cash position to avoid the next market downturn, and then take advantage.
Such is the life of a value investor. And with WRB and the S&P at their highest valuations in 8-10 years (depends on which metric you choose for which), it's time to get more cautious.
Thank goodness for WRB, which stayed dirt cheap for so long after the financial crisis.
It does indeed look like WRB is going to continue to delve into other areas, diversifying their reach, and further coiling the spring if/when we ever see a hard market in insurance again.
That said, management seemed pretty downbeat on rates going forward, with Rob saying "rates are plateaued or trying to decrease".
And their comments on the growing tension between insurers and brokers also sounds like major industry turmoil as well. Rob made it sound like their high net worth business startup is going to strictly use an on-line platform. If that turns out to be true, I wouldn't be surprised to see WRB move more of its products to being sold directly online. It is the way of the world in many businesses today.
Bottom line: while this may be a good place for WRB to increase its business lines, it's going to be detrimental in the short-term, as there are startup costs that being down profitability before increasing it. And with rates taking a turn for the worse, I am not expecting WRB to be shooting out the lights on earnings for the next couple years. Throw in the fact that WRB is trading for nearly 1.5x book, about as high as it's been in 10 years, and I am expecting the stock to see $50 before it sees $60 again.
Mind you, this is coming from a 6-year WRB bull who still holds an insane percentage of WRB in my portfolio. But I have sold some shares here in the upper $50s, and expect I'll be able to buy them back lower.
Bill may never have sold any of his personal shares, but for many years, he has been waiting to buy back shares for the company closer to 1.15x-1.25x book. And I am going to follow his lead on that.
WRB plays the long game. If you're going to own part of the franchise, prepare yourself. And buy more shares as we near $50 again. We could easily see $40 in book next quarter. And 1.25x book is a great time to be buying this stock.