Why I’m Going to Omaha

[Wide Moat Daily]( Why I’m Going to Omaha By Brad Thomas, Editor, Wide Moat Daily As I write to you, I’m preparing for a trip to Omaha, Nebraska. Today, I’ll tell you why I’m going and what I intend to do while I’m there. But first, a few notes. First, I’m preparing to publish a mailbag on Monday. If you have any questions – on markets, the Federal Reserve, real estate, or anything else – I’d love to hear from you. Write me a letter at feedback@widemoatresearch.com. Second, let’s talk about the Fed decision. The decision has been made. The details have been publicized. After weeks and months of speculation, the Federal Reserve has officially cut benchmark interest rates. And not by a mere 0.25% but by a full half point to 4.75%-5%. Moreover, the Fed consensus was that there would be two more cuts – this time by a quarter-point each – in 2024, with four more cuts in 2025 and another two in 2026. We can get a view of this in the chart below. Source: FOMC This is the “FOMC Participants’ Assessment of Appropriate Monetary Policy” chart published yesterday. Don’t let the humdrum name fool you. It’s arguably the most important view into the Fed’s thinking. It shows the opinion of the various FOMC members on the direction of the Fed’s key rate. When looking at this, the market wants to know one thing – trajectory. And the trajectory seems pretty clear. Barring something unexpected, rates are going lower in the years ahead. Once again, we shall simply have to wait and see. Investors seem quite happy with the move today. Though they had a much more mixed reaction to the news yesterday, dipping down, then up, then down again… though not by much. The S&P 500 dropped a mere 0.29%, the Dow just 0.25%, and the Nasdaq a comparable 0.31%. Traders simply weren’t sure how to interpret the news right away. Was it good? An opening for businesses to grow at less cost? Was it bad? An indication the economy is in a worse spot than originally thought, with that “soft landing” everyone’s been predicting an elusive dream? Powell certainly pressed against that latter notion. However, it’s not like he’s the most trustworthy source of economic analysis ever (Who could forget “transitory inflation”?). Sorry, but it’s true. Regardless, my answer to those questions remains. I still ultimately expect to see a recession sometime soon. Though that short-term prediction doesn’t change my long-term assessment of how to handle the markets. Nor does it change the fact that – downturn or not – there are key small-cap stocks that are now in a better position than they were the day before. And it’s those key small-cap stocks I want to tell you about today. That brings me back to my trip to Omaha. The Mini-Berkshire Hathaway I’m Currently Considering Warren Buffett, the legendary “Oracle of Omaha” and chair of Berkshire Hathaway (BRK-A)(BRK-B) – one of the world’s most successful conglomerate holding companies ever – once said: It’s a huge structural advantage not to have a lot of money… The universe I can’t play in has become more attractive than the universe I can play in. I have to look for elephants. It may be that the elephants are not as attractive as the mosquitoes. But that is the universe I must live in. In short, he can’t consider small-cap investments. He’s too big and would move those shares too much to truly benefit from them. I’ve quoted that comment before. Yet it’s well worth reminding you of today considering the “mini-Berkshire Hathaway” I’m investigating right now. For the record, this is not a recommendation. I’m still in the doing-my-due-diligence phase of looking into this company. If you’d like to look into it too, more power to you! But I have to repeat that it does not have my stamp of approval yet. Maybe it never will. With that said, Boston Omaha is quite the intriguing prospect from what I’ve seen so far. And, yes, with a name like that, it is based in Omaha, Nebraska, just like Buffett is. However, that’s not the only reason I’m (currently) branding it a mini-Berkshire. Boston Omaha is also a public holding company that mainly, though not exclusively, focuses on four sectors: - Broadband/telecommunications services - Billboards/outdoor advertising - Bonds/surety insurance - Asset management This is its circle of competence and therefore “the backbone of [its] business,” according to its website. Like Buffett, Boston Omaha appears to believe the mantra, “Never invest in a business you cannot understand.” With all that said, there is one very big difference between the two entities. And that would be the size of the two firms. To put in Buffett-speak, one hunts for elephants. The other, let’s say, tracks down bunny rabbits (since mosquitoes do not sound attractive). With a market cap of just $460 million – compared to Berkshire’s $990.727 billion – Boston Omaha is considered a small-cap conglomerate. For one thing, that does make it more risky. Yet it also makes it a whole lot more affordable. And, for the reasons I’ve already mentioned… both in this article and in more detail [last Thursday]( the company’s small-cap status makes me that much more intrigued with its profit possibilities. More Reasons to Investigate Boston Omaha Further One of the more interesting small-cap assets Boston Omaha holds is a stake in an aviation hanger company known as Sky Harbour Group (SKYH). This scrappy little business – which also isn’t a current recommendation – has a market cap of just $875 million. But that comes with big potential. As a real estate company (that could eventually become a real estate investment trust), it develops, leases, and manages business plane-oriented aircraft hangers. I’m always saying the REIT sector could expand further from the traditional office, apartment, shopping center categories. But I can’t say I ever thought about aircraft hangers before. Boston Omaha was ahead of me in that recognition, foresight I can’t help but respect. I’ve already reached out to meet management and speak with them one-on-one. That’s part of my due diligence. I read all the black-and-white details and crunch all the numbers I can find… Then go right to the source itself to make the company verify everything that’s been published. Good and bad. Self-proclaimed and analyst opinions alike. I want to know it all. In this specific case, along with questions about their profitability, current holdings, prospects, and business philosophies, I also want to know more details about why their previous co-CEO, Alex Rozek, left in May. The official report was that he wanted “to pursue new entrepreneurial opportunities,” and maybe that was all it was. But with him gone, I still want to hear how it’s affecting the larger company. That’s the thing about researching a potential portfolio pick. I can have a good or even great feeling about it. I can like the economic conditions it’s operating in, and I can identify turning points that can really boost its growth, such as the Fed’s latest decision. However, I want to walk away confident that the company knows how to take advantage of such things in a sustainable way. And, when it comes to small-caps, that my investment will eventually turn into something the Oracle of Omaha would wish he could have gotten into right from the start. Once again, this is not a recommendation. But I’ll be putting boots on the ground in the coming days. Paid-up members to our premium services here at Wide Moat Research can expect to hear more in the weeks ahead. Regards, Brad Thomas Editor, Wide Moat Daily [Wide Moat Research]( Wide Moat Research 1125 N Charles St, Baltimore, MD 21201 [www.widemoatresearch.com]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. This editorial email containing advertisements was sent to {EMAIL} because you subscribed to this service. To stop receiving these emails, click [here](. Wide Moat Research welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice. To contact Customer Service, call toll free Domestic/International: 1-888-415-6046, Mon–Fri, 9am–5pm ET, or email us [here](mailto:feedback@widemoatresearch.com). © 2024 Wide Moat Research. All rights reserved. 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