The price of arrogance

I’m going to get the disclosures out of the way at the top for this one.

The oddly-named Boston Omaha Corp. is currently my 11th largest individual stock holding. It accounts for about 2.14% of my individual stock portfolio, and well less if mutual funds and LLCs are included. But it is a five-digit position. I have added to it steadily over the years, including this year.

It has not worked out for me, at least not in 2023.

That’s an ugly chart.

There’s a lot of ways to explain it. Boston Omaha is an investment-focused business in a difficult, competitive environment for capital raising. A lot of the company’s activities involve planting seeds to be harvested later, and the current market is as impatient as ever. The business, from the name to what it does, is either confusing or non-memorable, depending on your perspective.

Boston Omaha. The company run by Warren Buffett’s grandnephew, named for the two cities where its co-CEOs are based, with a portfolio built around billboards, surety insurance, rural broadband, and increasingly, asset management, is kinda a confusing mess to an outsider looking in.

But here’s the rub: Despite that stock price, the actual business appears… fine? Book value per share is up 71% in the past five years, and up 8% in 2023 even as the stock has lost nearly half of its value. I don’t know the perfect metric and there are flaws in all of them. Boston Omaha even admits book isn’t what it used to be. But to my eyes book remains a pretty good measure of this business. And Boston Omaha shares today are pushing towards a nearly 20% discount to book.

So, what’s going on? It isn’t the whole story, obviously, but I chalk a lot of it up to arrogance.

Co-CEOs Alex Rozek and Adam Peterson are two clever gentlemen. That’s a big part of the thesis here: Their ability to allocate capital. They’ve used the Buffett halo discreetly but effectively to build credibility. And they famously have adopted some of Warren’s persona, including no earnings calls, spartan investor relations, and a very long-term focus.

It is an admirable stance, but it is beginning to look foolish. The next LeBron James, some 12-year-old basketball phenom dominating rec leagues right now, well and truly could be the next LeBron James. But he’d very likely be laughed off the court if he suited up for the Lakers today. Similarly, Boston Omaha is suffering in part because they are trying to play by their own rules before they have ascended to the big leagues.

I refer you to this excellent thread by the excellent Matt Frankel, who knows far more about the company than I ever will. And these two tweets in particular…

We are focused on the long term around here. I’ve said repeatedly I don’t want to invest in companies that need to explain themselves every three months. Buffett’s refusal to play the game is, to me, heroic and admirable.

But as Matt notes, Berkshire has earned the right. In 2023, the age of social media and instant gratification, it is hard to imagine Berkshire Hathaway would have been able to get away with it when they were just up and coming. Heck, in times of crisis there are calls for Warren to do quarterly calls even today!

To paraphrase a great quote once uttered in Omaha, Boston Omaha, you are no Berk Hathaway.

In the long run, it shouldn’t matter. If Boston Omaha executes to plan the market will not miss it forever. Eventually, the market will allow Alex and Adam the freedom to speak when they choose. We need to be patient.

It’s also possible it doesn’t matter for very different reasons. Boston Omaha is seemingly running fine but not necessarily setting the world on fire in such a way that arguably demands you jump on the bandwagon. It could end up that these businesses just aren’t as great as management (and investors, myself included) think they are.

And given how much it turns me off when CEOs are too focused on their current share price, there is only so much self-promotion I’d likely tolerate even if Boston Omaha changed its stripes.

But as is so often the case, it seems some sort of middle ground is appropriate here. Some sort of openness with the investment community would likely serve the stock well, and at the same time would help advance the businesses forward.

Looking at that chart, someone is clearly wrong here. It wouldn’t hurt management to face the spotlight for a few minutes to explain why investors have nothing to worry about.

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