Ulrich

A good and interesting Bank is Chesapeake Bank (Chesapeake Financial Shares). It earned a return on equity north of 10 % last quarter. With a leverage ratio of 5,6 to 1. The bank is interesting because they have a mix of 50/50 between interest income and non-intererst income. They do wealth management and merchant card in a relative big way for their size (market cap 121mio $ ). Looks like a small bank with a great future. It s still trading for under 1,5* tangible book value and i m pretty sure they will do double digit returns on equity in the future. The CEO owns a big chunck of stock and i think Chesapeake has a very good line of non interest income businesses to make it successful in the long term. The Bank is pretty old but build a pretty good local franchise over the last few years.

I think in traditional life and annuities scale is not really a big factor. Even a smaller Insurer like Kansas City Life hat 100 000s of customers. The Insurer can only ( or the most of it s assets) invest in investment-grade bonds or very conservative morgages... The better return of equity of the real big insurers often comes from a little bit less conservatism ( look at National Western for example or American National) or that the insurer has additional businesses like asset management etc. On the other side small insurers can have a fantastic small franchise. Look at National Western ( nearly 43 million dollars in profit on 130 million Dollars of premiums in their internation life operations). The pro point for the big insurer could be that A) people think the big insurer is safer! (That s a point for many people. Of course it s heavy regulated. But i know people who chose Allianz over smaller competitors because of the brand (i m German) b) the big insurer has much more troops going from door to door. On the other side in times of low interest rates the small fixed costs of the little insurers could be little plus. My pro point for smaller insurers is A) the balance sheets is often easier to understand (less trading assets...). b) The smaller insurers often operates in only one currency and one market (laws for life insurance is different from country to country). So a Met Life / Allianz etc. is harder to understand.

I don t say that i would not buy Berkshire at these prices. But for me there is a) i am German and so i like part of my assets in German companies (currency factors etc. ok over the long term that will not be the big factor). On the other hand it may be that buffett and the leaders of the berkshire companies are all clever and noble business men. But i think that Hank Greenberg was also a clever business man (maybe a bit to much into making the numbers) and i m sure a lot of people thought of AIG as an very risk free compounder. But in such an big conglomerate someone could do something stupid and maybe buffett is is ill or looses control an other way (ok , unlikely :) but possible). I think big business can easily become an political target. Buffett is a star in the american media. But maybe the media backfires and shows buffett as greedy old man and politics think that it would be an good move to crush his business. Maybe i think too German or European, but i know a lot of situations were business were crashed by political public stunts. For an example the german energy utilities. A lot of wealthy people had stock of energy companies here. Over night Angela Merkel thought that nuclear power became to unpopular and destroyed business models . I know that American is more business friendly, but i see that parts of the American politic elite wants to make the USA more France-like.

@frommi: i don t think "nwli" or "hornbach" will double in 2016 :) I think these are good businesses under conservative family control with an track record (not warren buffett like, but who knows the next berkshire or m&t bank??? ). But the businesses are trading at a fair price and business models i understand. -- Another business that is cheap by assets is Sega Sammy from japan (video games, gambling machines, golf courses, casinos etc.). But i think the business ist much more difficult to value. Of course it could be an big winner. The next sonic game could be a pokemon or Grand Theft Auto blockbuster. But too hard to say for me. I like understandable businesses (for me, i m not the smartest person around) with good asset base i can buy at an fair price. Over time it worked for me :) I found a few big winners in the past; but these findings are rare today.

I own National Western , too. With the same logic you can maybe look at American NAtional Insurance ( conservative Insurance company company with the same owners "the Moodys" ). But National Western Life seems to build book value better. National Western life is not a bad business niche (high networth people in countries with monetary unsecurity). The Moodys grew this business for a long time (i think book value is in an uptick for 50 years). What i don't like ist that they became a little bit slow to deffer their aquistion costs . But that could fasten with better interest rates. --- As a german i m interested in an company named Hornbach Holding. Hornbach is an Do-It-Yourself retail chain under family control. They are growing for years and own gread commercial real estate in bigger cities (mostly in Germany, but in Austria, Switzerland... as well). They are profitable and are valued below their book value (and this book value is undervalued a lot, because the company is in business for a long time and looks like an real estate company selling wood and tools). For someone who is interested in good managed and growing european company with strong real estate assets.. look at Hornbach.