Unlike speculators, investors have criteria against which they evaluate investment opportunities. Charlie Munger shared four criteria he and Warren Buffett use to evaluate an investment opportunity in the following interview: full interview here.
At Axiam our criteria are as follows:
- 1. Companies that have Brands within the Top 100 Brands in the world.
- 2. Key Performance Indicators we can understand.
- 3. Free cash flow that allows us to determine the value of the company.
- 4. Low Debt to Equity.
Walmart is easy to understand
Walmart is easy to understand. It is the world largest retailer and sells groceries, health and wellness products and other merchandise at the lowest possible price. As consumers, it is easy to understand the retail business.
Walmart meets our Criteria
- 1. Walmart ranks as the 31st most valuable brand in the 2018 BrandZ report from WPP. Walmart’s customers understand it stands for “every day low prices”. This proposition is appealing to the US consumer not affluent enough to shop on Amazon or at Costco.
- 2. Walmart has 11,700 stores and serves 270 million customers per week. There is a Walmart store within 10 min of 90% of every American, demonstrating Walmart’s distribution capability and ability to operate at scale. Walmart makes 56% of its ½ Trillion USD in revenue from selling groceries in the US and 27 other countries around the world. Walmart is the world’s largest grocer! The rest of Walmart’s revenue comes from health and wellness products and general merchandise. Walmart has revenue of $500bn (Amazon revenue is $178bn).
- 3. Walmart operates in a world of razor-thin margins but still generated over $18 billion in free cash flow in 2018. It distributed over $14bn of this via dividends and share buybacks to shareholders (Amazon’s distribution was 0).
- 4. Walmart has a Debt to Equity ratio of 0.47. Compare this to bank that would be closer to 8!
At AXIAM we focus on a long-term investment strategy built on 11 Investment Principles gleaned from the world’s great investors like Warren Buffett, Howard Marks and Charlie Munger. Contact our fund managers or sign up for our newsletter if you would like to learn more about investing your capital to provide ongoing retirement income.