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Here's Why This Small-Cap Is One of My Largest Stock Investments

By Matthew Frankel, CFP® – Updated Aug 16, 2021 at 8:17AM

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Most of my large positions are big companies, but this is an exception.

Most of my stock portfolio is filled with larger companies that have been around for a decade or more, but Boston Omaha Corporation (BOC 0.35%) is one big exception. And not only do I have shares of Boston Omaha, but it's one of my largest stock positions. In this Motley Fool Live video clip, recorded on Aug. 2, I discuss why I'm such a big fan of Boston Omaha with Industry Focus host Jason Moser. 

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Matt Frankel: What do you think of Boston Omaha as a stand-alone company? I have a small position I might add to. Well, I mentioned earlier that that's my third largest stock holding, so that should tell you what I think of it. For a little more color, I like what they're trying to do and I feel like they're very misunderstood by the market. They're losing money right now, their businesses are not profitable. They have three main businesses, they have billboard advertising, surety insurance, which is something that a lot of professionals have to have, and they have rural broadband service. All of them have fantastic economics especially at scale, none of them are big enough in Boston Omaha's portfolio to really generate a good profit yet. For example, their rural broadband business has an 85% gross margin right now. A lot of upfront capital is required to get that service out to people. Over time, that should turn into a big high-margin stream of income. The same could be said for all of their business lines, I like that they are willing to invest in minority stakes in businesses. I like that they're being like a 21st century conglomerate and getting into the SPAC game. Like I mentioned, that they are pretty much the only company that has allowed investors to participate in the sponsor side of the SPAC business. I'm a big fan, it's not a low-risk investment. If it was easy to build the next Berkshire Hathaway, everybody would do it.

Jason Moser: It's a good point.

Frankel: Which is what they are trying to do essentially, is to build Berkshire like conglomerate over the years. That one could be a massive company when I'm ready to retire, or it could be a mediocre return over time. But I love what they're trying to do, I think their execution has been fantastic so far. Remember they invested $10 million in Dream Finders Homes (DFH 2.03%) and that stake is worth over a $100 million now, excellent capital allocation so far. On the surface, I'm a fan of the new SPAC deal they just announced, but I'd have to hear more before I can really comment on it. But I'm a big fan of Boston Omaha. I like their management, I like how down to earth they are. I read their shareholder letter recently which was delayed for a few reasons. You know what their big operational update was Jason?

Moser: What's that.

Frankel: They moved out of the CEO's mom's dining room this year, they were so cost-conscious. You know how Warren Buffett, even though they are a half trillion dollar conglomerate, they operate out of one single office in Omaha?

Moser: Yeah.

Frankel: Boston Omaha hasn't even had an office, they've been putting everything they had into the business. They finally got an office this year and that was the big operational update. The CEOs are so relatable and so down to Earth and you can just sense that they are all-in on this thing. They weren't thinking a salary up till I think last year, they were just working for free trying to really get this off the ground and build it the right way. Warren Buffett even takes a very nominal salary. One of the CEOs is Warren Buffett's grand nephew.

Moser: Yeah, I remember that.

Frankel: He even writes in the same tone. If you read the annual letter, there are parts where you could imagine Buffett saying the same words. I'm a big fan, I might even add to my position even though it's one of my largest, I just love it as a long-term investment. I think the downside risk is somewhat limited. It might not be the next Berkshire Hathaway (BRK.A 0.07%) (BRK.B 0.10%), it might not generate 20% annualized returns over the next 50 years, but that's OK. It should deliver nice returns, and I feel like the downside risk is somewhat limited based on what they are doing. Great capital allocation is one of the things I look for in CEOs, and they've done it so far. It's early, but they've done it.

Matthew Frankel, CFP owns shares of Berkshire Hathaway (B shares), Boston Omaha Corporation, and Dream Finders Homes, Inc. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Boston Omaha Corporation. The Motley Fool recommends Dream Finders Homes, Inc. and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

Stocks Mentioned

Boston Omaha Stock Quote
Boston Omaha
BOC
$28.76 (0.35%) $0.10
Berkshire Hathaway Stock Quote
Berkshire Hathaway
BRK.A
$477,402.98 (0.07%) $317.98
Berkshire Hathaway Stock Quote
Berkshire Hathaway
BRK.B
$316.15 (0.10%) $0.31
Dream Finders Homes Stock Quote
Dream Finders Homes
DFH
$9.55 (2.03%) $0.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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