Moving the Goalposts

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Jason’s Random Words

We got a bit of a bombshell on Friday when Boston Omaha announced that co-CEO and co-Chairman Alex Rozek had left the company. I made a video sharing my thoughts on this sudden and unexpected departure, the implications, and my thoughts on the company as an investable idea going forward.

But what I didn’t talk about in that video, but is absolutely happening at real time across the Boston Omaha shareholder base right now is a lot of moving the goalposts.

For the non-sports-inclined out there, let me define what that means. In short, it’s the act of shifting the goals in the middle of play to make sure an errant shot, kick, or attempt to score still hits the goal.

Moving the goalposts.

As investors, we do this a lot. It’s also sometimes described as “thesis creep” where we gradually change the thesis, not because the business is changing, but because it’s failing to perform, and we can’t admit that we got it wrong.

So we move the goalposts, whether out of pride or stubbornness, so that our bad shot now looks good again.

The reason it’s likely happening a ton with Boston Omaha is simple. The thesis for this business was simple: There are two young, talented co-CEOs who are really good at allocating capital. Let’s give them our money and they will turn it into more money.

Oh, and one of them is Warren Buffett’s one of their great uncles! We have a baby Berkshire on our hands, guys!

Well, it turns out that the guy who’s leaving is Buffett’s great nephew.

But he’s not a great capital allocator, amirite? Eh? Or at least a lot of shareholders in the company are now telling themselves that. The “good” capital allocator is the one that’s staying put.

After all, the company is even giving you justification to do just that in the press release. Instead of the big acquisitions the company had been making in prior years, Boston Omaha will now focus on its existing operations, and any further acquisitions will be small (adding billboards here and there, not buying a big competitor, for example) and funded from existing cash flows. No taking on debt or secondary stock offerings to fund big growth.

That’s a very big change in the thesis that the vast majority of shareholders had in mind when they bought the stock, whether last week or five years ago.

Does that mean that the new thesis is wrong? Not at all. By all evidence, the change in strategy makes sense, and the company has been — evidently now under Peterson’s urging and maybe against Rozek’s wishes — moving away from using outside money to fund outside growth. Boston Omaha announced last quarter they’re closing down their asset management business was likely one of the moves that led to Rozek’s exit.

But the results say it was time for a change. Except for some timely asset sales in 2021, Boston Omaha has consistently generated either negative or very low single digit returns on assets since its IPO. So far, they just haven’t been very good at what investors gave them money to do.

Will a solid Adam Peterson act change that? Maybe. He seems to be the one who’s more disciplined, and also has significantly more economic interest in the company.

But until we see his impact as measured by the company’s financial results, there’s a lot of uncertainty. Any investor who’s certain that Boston Omaha is in better shape after Rozek’s exit is just moving the goalposts. I might have been looking in the mirror as I wrote those words.

Jason