Wal-Mart Shareholders' Meeting; Essential Investment Reading

NBA Finals and the Wal-Mart Shareholders Meeting We toured new store concepts and visited with several officers of Wal-Mart last week. With Walmart's growth prospects on our mind and the NBA finals in full swing, we're reminded of the Boston Celtic basketball dynasty of the 1950s and 1960's. The Celtics won 11 championships in 13 years, unmatched by any pro sports team. More than just having a talented lineup, they had a formula. That formula was to force their opponents to take lower-probability shots, usually contested and farther from the basket, while the Celtics used an effective passing game to take high percentage shots near the basket. Walmart, via the use of EDLP, great merchandising, and logistics, had a similar formula, taking lots high percentage shots, or investments, and forcing their competitors to take lower percentage shots. This was especially effective in expanding the discount stores and supercenters. Prospectively, is Walmart still taking high-probability "shots" and forcing its competition to take low probability "shots"? We visited three concepts - Walmart Market, Walmart on Campus and Walmart Express, and, no surprise; each store looked really good, and seemed to be an appropriate fit for the target market. While we don't know how these concepts will evolve, it is clear that it will be years before enough square footage is added to move the earnings needle. More importantly, we observed that Walmart is investing significant energy, time and talent to grow the company. Serving rural markets and operating smaller, leaner grocery stores should be high percentage shots, layups really, for Walmart. Walmart on Campus is an intriguing concept, has potential, and could serve as a prototype for WMT to display agility in merchandising as it begins its urban assault. Turnover in Shareholder Base Several publications have touched on the fact that Walmart's ongoing buyback has increased the Walton Family's ownership of the Company from 38% to 48% over the past decade or so. Investors should also be aware that the shareholder base has transitioned from growth investors to value investors, who tend to have a longer term view and like to buy bargains. Here's a good example of how a value investor "values" shares of Wal-Mart Top Readings in Finance for Busy Executives The Seven Immutable Laws of Investing - or, where NOT to put your money now. Read it here. Seth Klarman 2010 Client Letter - How to really manage investment risk. Read it here. Decoding 401(k) Mutual Fund Brochures - a short, tongue-in-cheek guide The Last Word "When he writes a check, the bank bounces." - Bob Davie, referring to Dallas Cowboys owner Jerry Jones
Have a thought or comment? Give us a call or email. Scott Alaniz, CFA scott@bostonmmm.com Joe Chumbler, CFA joe@bostonmmm.com Rogers (479) 657-6940 Information in this report has been obtained from sources that we believe to be reliable. Boston Mountain Money Management does not guarantee its accuracy or completeness and assumes no responsibility for actions taken with respect to information contained herein. The authors held a position in Wal-Mart Stores and at the time of this newsletter.