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AT 40 YEARS OLD, I missed out on the phenomenal early years that allowed Berkshire Hathaway to return nearly 3,000,000% since 1964, versus a “mere” 23,500% for the S&P 500. Yet my investment time horizon is still long—and that’s a huge advantage as an investor.
How should I use that advantage? As I write this, Berkshire’s total stock market value is roughly $650 billion. By contrast, one of the stocks my wife and I bought—Boston Omaha—is worth less than $1 billion. Our hope: Guided by its two thoughtful co-CEOs, Boston Omaha (symbol: BOMN) will generate impressive long-run compound growth. But before I describe the company, I want to offer three caveats.
First, nothing replaces the wisdom of owning index funds, as Berkshire’s Chairman Warren Buffett has frequently noted. Second, Boston Omaha is a growing company that raised money by issuing shares earlier this year. Our shares will get diluted if they raise additional capital to grow, which is a possible drawback. Third, the issue price of its new shares was at a price much lower than the company’s current stock price.
Please don’t take the following discussion as an investment recommendation. Rather, my goal here is to describe what I look for when we don’t invest in index funds—which is where we keep the vast majority of our money.
Why do I like Boston Omaha, which is named for the hometowns of its co-CEOs? First, if you read my article yesterday discussing my investment criteria, I like dirty jobs that are tough to disrupt but easy to scale. Surety bonds, billboards and fixed broadband cable in rural areas may sound boring, but they’re music to my ears. Each has excellent profit margins and a protective business moat that’s difficult to cross.
On top of that, Boston Omaha is willing to innovate to grow its business. Last year, for instance, the company sponsored a special purpose acquisition company (SPAC). While SPACs have drawn well-deserved criticism, Boston Omaha used its SPAC capital to buy a significant stake in a company that builds private jets hangars at large airports—a business that generates boring, dirty, residual income that’s difficult to disrupt.
But that isn’t all. Boston Omaha also has allocated capital exceptionally well through minority private investments in residential and commercial real estate, and even a bank. Because its co-CEOs began as portfolio managers, they also maintain a large percentage of the corporation’s assets in the stocks of other publicly traded companies.
In short, its leadership is unrestrained in looking for the best place to allocate capital. Sometimes, that investment will be internal, such as acquiring more billboards or laying more broadband cable. At other times, it may mean investing in private or publicly traded companies. This business model of building out several core businesses strikes me as an even better way to allocate capital than the one that Berkshire Hathaway began with—depressed New England textile mills that slowly withered away.
That brings me to my favorite thing about Boston Omaha: the two co-CEOs. I want to invest with people who have more skin in the game than anyone else. Together, Boston Omaha’s co-CEOs own a significant portion of the company. Neither one drew a salary for many years, allowing more capital to be reinvested into the business.
The co-CEOs are Adam Peterson and Alex B. Rozek, and I hesitate to mention that the “B” is short for Buffett. Alex Rozek is the grandson of Warren Buffett’s sister, Doris, and grand-nephew to Warren. Rather than publicize this association, Boston Omaha’s leadership humbly goes about building their own business. Yet, when I read their letters to shareholders, I can’t help but be reminded of the insights and humility of Rozek’s famous relative.
Am I hoping for the next Berkshire Hathaway? No. I’m clear-eyed about the exceptional talent and circumstances that powered Berkshire Hathaway’s success. Candidly, I’d consider this investment a resounding success if my wife and I enjoyed a long, profitable, silent partnership with two shrewd capital allocators. From our point of view, it would be great if the destination proves lucrative—but I think the journey will be the truly fun part.
John Goodell is general counsel for the Texas Veterans Commission. He has spent much of his career advocating for military and veterans on tax, estate planning and retirement issues. His biggest passion is spending time with his wife and kids. Follow John on Twitter @HighGroundPlan and check out his earlier articles.
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John, thanks for an excellent follow up article. I enjoyed reading the process by which you select the individual stocks that make up a small portion of your portfolio. I sometimes think of likewise devoting a small percentage to my best ideas for individual stocks. But, alas, my past failures as a “stock picker” have kept me 100% in index and other funds/ETFs, for now at least.