In Focus: Walmart
Thanks for checking out this week's In Focus, a look into a company, companies, or markets that made Wall Street's news cycle. This week I bring Walmart, The Man, and an investment style in focus.
Legend Has It...
Have you read the story of Jeff Bezos asking Warren Buffett why more people don't follow his style of investing since it has made him the second richest person in the world? Buffett responds to the question by saying, because no one wants to get rich slow?
Buffett's answer is extremely true. I've understood how to invest since I was a teenager, but didn't really take it seriously until several years ago; and the reason why? I was trying to make money quickly. I can only speak for myself, but I wanted to make as much money as I could, as quick as I could, so that I could kick back as early as I could and do what I wanted with my time. I wanted to "make it" and that's something a lot of people can relate to, that sense of making it.
Walmart reported earnings this week, The company reported an earnings per share of $1.27 beating estimates by $0.05 and they reported revenue of $130 billion for the quarter, beating estimates by $1 billion. Society uses billion a lot, so it sometimes misses people how much money a $1 billion is, and how great a company is doing when they overshoot estimates by a $1 billion. But yeah Walmart is doing that. Revenue also grew by 1.3% versus the same quarter last year.
I did a deep dive on Walmart back in late 2016 early 2017. The stock at the time was trading slightly below $70 per share. The system I used graded Walmart as an investment a 'D' which in NYC public school is a passing grade, but I don't invest in 'D's. I'll admit, how I grade companies is skewed more towards deeply undervalued stocks with a strong possibility of a bounce back in the next 12 months. With that type of bias Walmart's stock didn't cut it in 2017.
Walmart's stock closed August 16, 2019 at $112.99. That's a 63% increase since 2017 when I passed on it, and that 63% doesn't include the company's dividend payments. For every dollar I would've invested in Walmart in early 2017, it would have given me $0.63 on top of my dollar. Those are life changing returns.
I passed on Walmart because it couldn't move fast enough, because I was still trying to "make it" even in a micro sense. During that time I was just starting to think about The Seville Report, and the idea of an investment newsletter geared towards new and inexperienced investors. I wanted to find a stock that could see a huge profit in 6 to 12 months, so that the newsletter could show off it's quick and hefty returns and gain more buyers/subscribers . Personally I bought Apple in 2016, 2017, so it's not all bad, but I missed Walmart, and it was such an easy buy at $68, $69 per share.
What really hurts is that after passing on Walmart, I spent hundreds of hours doing analysis to try and find the next deep value gem. For every company that grades 'C' or better, there are 10 to 15 that grade 'D' or 'F'.
Walmart's stock 63% rise since 2017 goes back to another Warren Buffett saying, about buying companies you're comfortable holding even if the stock market is closed. With Walmart in 2017 I was sure that whether or not the stock market opened Walmart would be open, doing business, and making money. I knew that their competition with Amazon would be tough, but that no matter what money could be made in investing in number two (Pepsi, Adidas, iOS). Yet with all of that insight I passed because I didn't think it would move quick enough.
Slow and Steady Isn't Sexy, But Profits Are.
It's easy, even for someone who watches and analyzes the markets all day long to get caught up in the hype of FAANG and other high fliers, and to be seduced by the tech start-up growing revenue 100% plus year over year. It is so easy to get caught up in the glamour of getting a big big winner and making it. But all big winners aren't sexy, all big winners don't make daily, weekly, or even monthly news cycles. All big winners don't have subs or walled gardens, or futuristic tech. Some stock market winners just open everyday, create business, watch margins, and make plans to grow without blowing up the foundation. That is Walmart, it isn't sexy, but it's profitable, 63% in over two years.
I would tell all investors, especially new investors, don't overlook slow, steady, and boring for fast, volatile, and sexy. As we've all learned from the Tortoise and The Hare, slow and steady wins the race. Just look at Uncle Warren, he's been investing in slow and steady for a long time, and it looks like it's working out for him.
This is where I leave you. Thanks again for checking out this week's In Focus.