Let's rewind the clock five years, to the end of 2020. The COVID-19 pandemic was still a disruptive force in everyday life, and the stock market was rising rapidly after major economic stimulus and optimism that life would return to normal.
My portfolio also looked very different than it does today. In fact, my largest investment at the time was a company called Boston Omaha Corporation (BOC +0.15%), an emerging conglomerate that drew comparisons to an early stage Berkshire Hathaway (BRK.A +0.47%)(BRK.B +0.42%).
Fast-forward to the present time, and let's just say that things didn't go as well as I would have liked. In fact, after paring down my position a few times over the past couple of years, I finally sold the rest of my position in Boston Omaha a couple of weeks ago. Here's why.
Image source: Getty Images.
Why Boston Omaha was my largest investment
To be clear, I never intended for Boston Omaha to become my largest investment. I started buying shares in 2017, when it was a recently public company. I added a bit when the initial wave of the pandemic sent the stock plunging, and I had an average cost basis of about $17 per share.
Well, in early 2021, when the meme stock craze was going on, Boston Omaha spiked to nearly $50 -- and suddenly, what had been a midsize position became my largest investment.
I bought Boston Omaha because there was a lot to like about the business. Management focused on three main businesses (billboards, broadband, and insurance) that had solid economics and were making some minority investments that looked promising.
Things were going well for a while. Just to name a few things, the company's minority investment in Dream Finders Homes (DFH +4.82%) became a 10-bagger when that company went public. The billboard business was growing rapidly, the fiber assets were being built out fast, and Boston Omaha announced an asset management business that would raise third-party capital to invest and collect fee income from.
Why I decided to sell
To put it mildly, the thesis didn't play out as I'd hoped. Business results have been unimpressive. In the most recent quarter, billboard revenue grew by just 2.5% year over year. Broadband assets aren't delivering the cash flow that was expected. And the asset management business is in the process of being wound down after failing to get any traction with its capital raising efforts.
NYSE: BOC
Key Data Points
There have been some major management red flags as well. Both co-CEOS ended up taking an outrageous bonus a few years ago. I won't get into details, but because of the way the bonus plan was designed, they essentially got more than a decade's worth of bonuses at once. Then, co-CEO Alex Rozek abruptly left the company and got millions of dollars above market value for his super-voting stake in the business, at the expense of shareholders. And management doesn't hold quarterly earnings calls or otherwise communicate with investors effectively, which I feel is important, especially when things aren't going well.
After remaining CEO Adam Peterson took the reins, I committed to giving it a year or so to see if anything would be different. Other than a few minor improvements to communication, it wasn't.
To be fair, Boston Omaha's management is making some moves to boost investor confidence. The company recently announced an upsized buyback program, and several insiders have been buying shares with their own money. But I had been a shareholder since 2017 and at some point, I expect the actual business to start showing results, and that simply hasn't been the case.
Could I be wrong?
As a closing thought, it's important to point out that the main reason I held on as long as I did is that even with conservative assumptions, the value of the company's assets is more than its current stock price. In other words, selling Boston Omaha felt like selling a $100 bill for about $70. I won't go into my back-of-the-envelope calculations, but Boston Omaha is a cheap stock relative to its net asset value.
However, it trades at a steep discount for a reason. The market doesn't seem to have much faith in management or the business model at this point. On the other hand, if Peterson and his team can successfully grow cash flow and give investors reasons to be excited, it's entirely possible that the stock will outperform.
To be perfectly clear, I wish Adam Peterson, Boston Omaha's team, and all of the company's remaining shareholders the best. The bottom line is that for me, the red flags outweighed the reasons to stick around, and I've decided to move on to higher-conviction opportunities. The key takeaway is that if your reasons for buying a stock no longer apply, and the business (not the stock price) isn't doing what you thought it would, it can be a good reason to head for the exits.
