Watchlist Update: The Mini-Berkshire You Probably Missed

For the better part of the past six decades, Warren Buffett has created untold wealth for investors as the chairman and CEO financial holding company Berkshire Hathaway (BRK.A, BRK.B).

Buffett consistently crushed the market using a combination of Berkshire’s insurance operations, its investment portfolio, and a diversified group of dozens of acquired subsidiaries.

But with Berkshire’s market cap standing at $776 billion as of today, Buffett himself admits it’s increasingly difficult for him to beat the market by any meaningful margin these days.

Wouldn’t it be wonderful, then, if there was an earlier stage “mini-Berkshire” following the same blueprint for consistently creating shareholder value?

In fact, there have already been dozens of so-called mini-Berkshires working to emulate Buffett’s success. But one, in particular, stands out from the rest for me.

Meet Boston Omaha (BOC), a $500 million financial holding company founded in 2009 that went public in 2017 at $13 per share.

Shares of Boston Omaha fell nearly 40% in 2023, even as the S&P 500 rallied 25%, and ended the year at just below $16 — and this despite being run by two of the most exceptional capital allocators I’ve ever had the pleasure of personally meeting: Co-Chairmen and Co-CEOs Alex Buffett Rozek and Adam Peterson.

Yes, Mr. Rozek happens to be Warren Buffett’s grandnephew, the son of his late sister Doris. Alex even proposed to his wife years ago at a Berkshire shareholder meeting with Uncle Warren’s help.

And no, the elder Buffett is not involved in Boston Omaha’s day-to-day operations — though Warren has given Alex his de facto seal of approval, saying he’s “got a very good mind [and] certainly has good values.”

Similar to Berkshire, Boston Omaha operates on a multi-tiered strategy involving insurance (specifically surety bonds through its General Indemnity Group subsidiary), investments (with minority stakes in various businesses through Boston Omaha Asset Management (BOAM)), and a diversified group of other businesses (namely billboards and broadband internet service providers around the country).

If that sounds boring, know it’s by design; each of Boston Omaha’s chosen businesses are predictable, generate healthy returns on equity, and leave the company with significant room to expand whether organically or through acquisitions.

Still, Alex and Adam tend to bristle at comparisons between Boston Omaha and Berkshire, noting the scale and focus of their business is vastly different. I think that’s part of the appeal of owning a piece of Boston Omaha in the first place — though if anything, given its focus on hard assets Boston Omaha is arguably even more similar to $65 billion alternative asset manager Brookfield Asset Management (BAM). Still a flattering comparison, if we’re looking at raw potential.

Why am I bringing up Boston Omaha now?

Put simply, it’s a difficult stock to value. And I think that difficulty has created a massive disconnect between Boston Omaha’s current share price and the intrinsic value of the business Adam and Alex have built over the past 14 years.

Following its precipitous decline over the past year, Boston Omaha’s current share price stands below its latest reported per-share book value of $17.28. But noting accounting quirks over the past several years have increasingly distorted the correlation between book value and intrinsic value for Boston Omaha, I believe the latter is significantly higher if we consider that Boston Omaha has deployed well over $500 million in capital to date (a sum greater than the entire company’s enterprise value) into various assets and businesses that have steadily increased their revenues, cash flows, and calculated worth.

If you’d like to learn more about Boston Omaha, you view its investor relations page here. Management doesn’t typically provide commentary on a quarterly basis, so I also strongly recommend reading Boston Omaha’s latest annual letter to shareholders.

• Boston Omaha is a difficult stock to accurately value. But I think there’s a massive disconnect between its current share price and the intrinsic value of the business Adam Peterson and Alex Rozek have built over the past 14 years. In my opinion, it’s highly likely that investors who open or add to their positions now will be more than pleased with their decision once the market recognizes its misstep.

• SoFi Bank is now the United States’ 80th-largest bank as measured by consolidated assets, up from 449th when SoFi Technologies (SOFI) first received its national bank charter in Q1 2022. This shouldn’t be entirely surprising considering total deposits at SoFi Bank grow 23% sequentially last quarter to $15.7 billion.
  
  That influx of capital provides SoFi with a lower-cost funding source for its loans segment, and affords the company additional flexibility to maximize net interest margins by holding loans on the balance sheet longer (rather than securitizing them and selling them to third parties as it was before the charter). SoFi’s upcoming Q4 report in late January should be interesting, to say the least.
  

• Epic Games, Stripe, and SpaceX rounds through StartEngine Private: Fresh on the heels of its Reg A+ Equity Crowdfunding round last month, StartEngine is once again rocking the startups-investing boat through its recently launched StartEngine Private portal. StartEngine Private is now enabling accredited investors to put their money to work in several of the world’s largest startups, including Airtable, Fortnite creator Epic Games, and Discord.
  
  In the coming months that list is widely expected to expand to include fintech leader Stripe and Elon Musk’s space technology conglomerate SpaceX. The batches of shares allocated to investors in these highly sought-after companies tend to sell out rather quickly, though, so I recommend signing up for notifications and keeping a side eye on the StartEngine Private page if you think these investment rounds could be up your alley.
  

• Vicarious Surgical’s (likely) reverse split: The robotic surgery innovator has had a rough 2023. Shares fell more than 80% to $0.37 per share, leaving Vicarious Surgical (RBOT) in violation of NYSE listing rules that mandate any stock close at or above $1.00 per share for 30 consecutive days. It has until March 20, 2024 to regain compliance or be delisted.
  
  But Vicarious also recently delayed its commercialization plans by at least a year due to cost-cutting efforts and integration challenges; it now expects to complete the V1.0 build of platform by the fall of 2024, followed by a de novo submission to the FDA in early- to mid-2026. Given its projected cash burn, that should leaves it with just enough cash to last until Q1 2026.
  
  Barring a miraculous rebound between now and March 20, I think Vicarious will be effectively forced to implement a reverse split to regain compliance. Probably best to continue watching this one from the sidelines for now.