The ideal investment is one you never sell. Not selling allows you to pay fewer taxes and makes running your portfolio, no matter how large, a whole lot easier. Plus, researchers have found that even professional investors have trouble making sell decisions. So why even make it a part of your investment process?
The problem is, businesses that fit the "never sell" category are few and far between. It takes strong management, a long-term time horizon, and undisruptable business models. Two stocks that fit these criteria are Boston Omaha (BOC -3.67%) and Nelnet (NNI -2.25%). Here's why.
Boston Omaha came into its current form when the now Co-CEOs Adam Peterson and Alex Rozek bought a controlling stake in REO Plus, a real estate company based in Houston, Texas. After taking control in 2015, Peterson and Rozek reorganized the business as a conglomerate with the goal of buying stakes or whole operating businesses with durable streams of cash flow. Peterson and Rozek decided to rename the company Boston Omaha because those are the cities they are from -- it has nothing to do with the companies they manage.
Since 2015, Boston Omaha has invested in myriad different businesses. These include a billboard advertising business called Link Media, a group of surety insurance companies, and majority stakes in two fiber and broadband businesses called Airebeam and Utah Broadband. These operating businesses have done well under Boston Omaha, growing sales at a consistent pace over the last few years.
However, the most exciting part of the business may be its stake in Dream Finders Homes (DFH -5.08%), a real estate company that just went public in January. Boston Omaha had invested $22 million in DFH in 2017 and 2019. Based on DFH's current share price of $25.03, that stake is now worth $120 million. Those spectacular returns won't be repeated on every investment, but it is an example of Rozek and Peterson's sharp investing acumen.
With operating businesses producing cash, a budding insurance operation, $190 million in cash on the balance sheet, and other outside investments that could be the next DFH, there's a lot to like with Boston Omaha. If you believe Rozek and Peterson can perform well with a decades-long time horizon, this is a stock that should never leave your portfolio.
Nelnet is another conglomerate based out of Lincoln, Nebraska (what is it about Nebraska?). It is a bit older than Boston Omaha -- it was founded in 1996, and went public in 2003. The core of Nelnet's business is a group of student loan assets that accrue interest each year.
What's so great about these loans is that the downside risk is almost entirely mitigated by the federal government, which guarantees at a minimum 97% of the principal and interest payments to Nelnet. Nelnet estimates that it will earn $2.3 billion over the life of this loan book, with $1.5 billion of that coming within the next five years.
Unfortunately for Nelnet, it is unable to originate new student loans, as the federal government took that in-house around a decade ago. However, it has been taking its interest payments and starting up other businesses or taking minority stakes in companies.
It owns 45% of ALLO Communications, a broadband business that it just sold a stake of for $197 million, an education technology and payments business that does $66 million in operating income each year, and an undisclosed stake in Hudl, plus other smaller subsidiaries.
Nelnet currently has a market cap of $2.86 billion. With the slowly amortizing loan book, the other operating businesses, and a leadership team that has compounded book value at 17% since 2004, there's no reason to sell shares in Nelnet anytime soon.
Why these businesses are different
The difference between these two stocks and others on the market is that you are not betting on a specific business or industry, but on two phenomenal management teams. Like Berkshire Hathaway over the last few decades, the underlying businesses within Boston Omaha and Nelnet may change over the years, but as long as current management stays at the helm, you can sleep well at night knowing your hard-earned money is in responsible and intelligent hands.