MKL is a niche insurance company focusing on specialty markets, somewhat similar to Berkshire Hathaway although on a much smaller scale. MKL is a $4bb market cap company versus Berkshire's $160 billion market cap. Before I can explain why MKL is a great company, worthy of Berkshire's attentions as a suitor, its worth giving a few bullet points on how the insurance company works. Basically, insurance companies take in money (the premiums), invest that money, and pray to god, they can hold onto it before all of their customers want their money back. Why would someone want their money back? They don't really – that’s the beauty of it. But if a customer of an auto insurance company, for instance, gets into a car accident, then the insurance company owes money to that customer. The "float" is basically the amount of premium paid to the insurance company (that’s a rough, naïve definition, but good enough for now). Most insurance companies lose a little money on their float (anywhere from 0 to 10% is common) – meaning they pay out more than they take in from customers and make money on their investments. Berkshire Hathaway often does the remarkable and makes money on their float. MKL's cost of float, like Berkshire's is negative. In other words, they make good money on their float. And they make even better money on their investments. Year over year their investments were up 13% and their year over year overall change in net income was 28.8%. Their net investment income is driven by their Chief Investment Officer, Tom Gayner. We keep track of all of Gayner and Markel's investments in the Markel portfolio on Stockpickr. On the latest earnings call Gayner reiterated his belief that today's market is cheap relative to valuations in prior decades and he likes companies that are growing their earnings by double digits that have great returns on equity. He also likes drug companies paying high dividends with heavy exposure to foreign countries. In particular, he likes companies focused on Brazil, Russia, India, and China (the so-called BRIC countries). Some large cap companies that Gayner has been accumulating include GE, AXP, BUD, and, of course BRK-a. I think MKL is a heavy candidate for a Berkshire acquisition. Buffett is looking for a Chief Investment Officer. He also wants someone who can handle $50bb and who is willing to forego the extreme compensation of his hedge fund peers. Gayner understands the ins and outs of the types of investments an insurance company can make. He currently invests $7 billion, but with a focus on large cap equities he would have no problem scaling up, and by already being at an insurance company, he's clearly not out there trying to start the next SAC Capital. At 45 years old he's clearly got a couple of decades experience but a few decades left to go in his career. In my opinion, he represents the perfect choice and its easy for Buffett to test him out via an acquisition. P/E ratios don't matter as much in the insurance world but, that said, at a P/E of 11 versus Berkshire's P/E of 15 it would be easy for Buffett to pay even a 20% premium and still have an accretive acquisition.

Brookfield Asset Mangement (BAM) is another company that I think would be on Buffett's radar. They are an asset management company with about $50 billion in assets under management. They have a real estate division, an invesmtnet division, and actually a power / utility division where they operate everything from hydroelectric power facilities, to wind power companies. They also run private equity funds, mutual funds, income funds, etc. I don't normally look at charts, but over the long term its hard to not like this picture: Although it seems like a straight line up, so have sales been , with revenues up 66% in Q4 of 2006 versus Q4 the year before. Operating cash flow over the last year grew 35% and in 2005 grew 45%. Cash flow comes from all its disparate properties ranging from its office buildings, its power facilities, its collection of timberland, and also its investments as well as the fees it charges on money it takes in from outside investors. CEO John Flatt focuses on long-term "forever" investments and looks for companies that can sustain 12%+ annual growth in cash flows. One of the best value investors ever, Marty Whitman, who runs the Third Avenue Value fund, is a long-term shareholder of BAM. Whitman is up 19.22% on average over the past three years. Here are Third Avenue's top holdings. Another holder of BAM is Spencer Capital run by Ken Shubin Stein who I have previously mentioned as a potential successor to Buffett. Having known Ken and also looking at his portfolio its clear he's always on the lookout for the next Berkshire Hathaway. He owns BAM but also owns an intriguing family run company, REXI, that is almost like a mini-Berkshire (very mini) in its own right. Spencer Capital also owns SHLD, the retail giant run by super investor Eddie Lampert. Lampert doesn't own a lot of positions but here they are.

- one of the best run investment banks. Dick Fuld is a potential CEO replacement for Buffett - 9.5 forward P/E. Cheap by any standards, even among investment banks - increased book value per share every year since Fuld took over in 1993 - $40bb market cap, right around the max size Buffett would probably consider. - strong asset management business since buying Neuberger Berman in 2003 for $2.5bb. NB now manages about $121bb in assets, almost half of Lehman's total asset management business.

- run by master investor Eddie Lampert. Lampert could succeed Buffett on either CEO or CIO side - excellent allocator of capital as demonstrated by the K-Mart and Sears deals. - company trades for just 7.5x EBITDA - Buffett has a 40 year history owning distressed retail.

- Buffett bought stock in BNI but could potentially buy the entire company of CSX. - great margins (20%) and ROE (15%) - Buffett likes companies without a lot of capex so he can reinvest the cash flows - trades for 8x cash flows so almost any deal would be accretive. - natural extension of Buffett's purchases in the pipeline business in 2002 (via his MidAmerican division). If you already transmit oil around, might as well transmit other commodities where you have a strong moat. - Jim Cramer noted in our video: no capex, strong competitive advantage, truckers are not competition.

- specialty, regional, and P&C insurer - increased book value for the past 7 years in a row. - extremely conservative underwriter, with a combined ratio of 87.5% this y ear versus 88.2% the year before. - investment income was up 45% - from a motley fool article: "WR Berkley has achieved 17 consecutive quarters of ROE in excess of 20%."

- regional banks. Buffett has been a fan of both regional banks and insurance ever since time began - he's already a shareholder - credit quality is very high. Despite the subprime mess, USB one of the few regional banks where credit quality actually improved over the past year.

- all the same reasons as above. with one added factor - the secret formula for Coca-Cola is kept in a safe at STI in Atlanta.