We Study Billionaires - The Investor’s Podcast Network - TIP178: Sam Walton - Made In America - The Story of Wal-Mart (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. On today's show, we talk about the American retail tycoon Sam Walton. Similar to other autobiographies, Walton provides key insights into how he was able to build his small five-and-dime store into the billion-dollar global retail chain it is today. Sam completed this book the same year he died, so there weren't any details left out of his writing. So get ready to hear some of his awesome insights and fun stories from the man that created $100 billion in a single lifetime. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most.

Starting point is 00:00:40 We keep you informed and prepared for the unexpected. All right. So like we said in the introduction, we're going to be covering Sam Walton's book Made in America. This was a really good read. We were waiting a long time for this to come out because it wasn't on audio books on Audible. And recently, I just saw it pop up there within like the last month. So Stig and I took a look at it and we said, hey, it's finally available. Let's go ahead and do this.

Starting point is 00:01:12 So Stig, I'm assuming you enjoyed this one. This was a very good read, right? Oh, yeah. I thoroughly enjoyed it. I guess especially in these days and times where everything is about high tech and the AI and blockchain and what's not. It was just nice to read like an old-fashioned book about how to become the richest man in American in retail being a merchant. I was not to lie about that. So I think we really needed this book for us.

Starting point is 00:01:38 You know, I had heard that Jeff Bezos had read this book before or while he was founding Amazon, and this was very influential for him to read this book. So I always wanted to get my hands on it and go through it, but I'm excited we were able to do it. So the layout of the book is really simple. It's really just kind of chronological order of when he started as a young, 20-year-old, something kid, and clear up to the day. And at the very end of the book, it gets a little sentimental because he's right. writing this kind of on his deathbed. And he tells the whole story. And that's what I really liked about it.

Starting point is 00:02:13 He didn't really leave anything out. But, okay, so let's go ahead and go through this, just like we kind of read it. We're not going to go chapter by chapter. We're just going to kind of tell the story. And then at the end, one of the things I really like about this is he lists out, Sam Walton lists out the top 10 things he learned through his entire life, specifically by building Walmart. And we're going to cover those top 10 things at the end of the discussion here.

Starting point is 00:02:36 So Sam Walton starts off. He's a military officer. He goes into the military and he does that until like his mid-20s. And then at the age of 26, he gets out after his little bit of service in the military. And then he gets out and he starts his first store at the age of 26. The year is 1945. And he opens his first variety store in Newport, Arkansas. And what he does is he takes out a $20,000 loan from his father-in-law.

Starting point is 00:03:06 and then he put in $5,000 of his own money that he had saved while he was in the army. And I'll tell you, back in the day, like 1945, to save up $5,000 while you're in the army, because I don't think you make all that much money in the army, especially as a young officer. That's a lot of money. Like, he saved up a large, substantial amount of money. Whenever he was in JC Penning, he was that just after his graduation for a brief period of time, he made $75 as a management trainee per month. So again, we don't know how much money he made in the military, but $5,000, that's a lot of money.

Starting point is 00:03:42 Yeah, I'm sure if you did an inflation comparison, you'd be $100,000 or something today, or I don't know what it'd be, but it'd be pretty high. So the name of the store, this variety store that he started, was called Ben Franklin. And this was a chain of stores. This was a chain by the Butler Brothers or the ones that actually owned the entire chain. But he opened that small store in Newport, Arkansas, and it was called a Ben Franklin. The thing that immediately caught my attention with the stories that he was telling was he's a very creative person. He's thinking outside the box and he's very customer focused and he's thinking of ways to attract people into the store. And he's thinking in ways that I think most store owners didn't think.

Starting point is 00:04:24 So the first thing that caught my mind was he goes out and he buys this ice cream machine. and he puts this ice cream machine right there on Main Street where everyone that's kind of walking through the town can see this ice cream machine right there outside of the store. And he's not charging much for the ice cream. Like it's the typical Walmart model where it's to drive traffic into the store. Like his intent isn't to, I think normal people

Starting point is 00:04:51 when they go in the retail, they're like, okay, well, the ice cream costs this much. So I want to have this much markup on top of it so I can make a profit and let's put it in front of the store. his model was like let's put it in front of the store and like let's not really make a profit on this like let's just kind of cover our costs with this ice cream and everyone in this flipping town is going to get their ice cream here instead of anywhere else and then after they eat their ice cream or maybe while they're eating their ice cream they're going to come into the store

Starting point is 00:05:17 and they're going to spend some money and that's what he did and it worked really well and so this is just kind of a hint at how Sam Walton thought very early. on was you have to have something that captures the person's interest to drive traffic to the store. Yeah, and it was actually really interesting what you said about Jeff Bezos before. I didn't know that he read this book and there was an inspiration to him. Whenever I read the book, I actually took a note about Amazon, about this example, and how he, I think it was one of his employees who said, so shouldn't we price this as XYC? And basically what he said was, no. I mean, we're talking about at cost. We are creating value for the customer. We are negotiating on behalf

Starting point is 00:06:05 of our customer. And if we can get a merchandise cheaper, that should automatically be reflected. And it really reminds me in terms of the book we read The Everything Store by Brett Stone about Amazon, how to have business has talked about this. And this famous example where he got a lot of of not only showing positive reviews of the products, because after it wasn't this about, you know, selling more products, and said, no, that's such a short-term way of thinking. It's all about customer focus, really focus on the customer, how to add value for the customer. As long as you do that first, the rest will basically follow. And that's, I guess, also what you're getting at here, Preston with, yeah, you might not be really making money out of this,

Starting point is 00:06:47 but at least they're in the store. They feel that they're well-treated. And then he can put the mug up on whatever he had in that store. I think this is the thing that a lot of people miss with the compounding impacts of like that decision with the ice cream machine is now when a person in that town goes to his store, to his Ben Franklin store, and they just bought ice cream and they enjoyed their ice cream and it was cheaper than anywhere else they can buy it by a fairly large margin. They're building this goodwill with the customer. Like they're going to then go tell their family.

Starting point is 00:07:20 They're going to go tell their friends. It's like, did you know I went down to that Ben Franklin and got ice cream at this price? Isn't that incredible? That's just awesome. That's so incredible that they're only charging that price, right? Like, that message is going to spread like wildfire through that town. And then the branding that's associated with a simple ice cream is now wearing off onto the Ben Franklin store that's right behind it. And people now have a favorable opinion of the store, regardless of the price of whatever that's in there. You know, it's almost like the book that we did, the power. of moments. These people are having this moment in front of the store where they're enjoying their ice cream with their families or their friends. And it's just leaving this favorable brand of that whole experience. I think a lot of business owners underestimate how powerful little things like that are. And so, like, obviously, Sam Walton understood the power of this.

Starting point is 00:08:10 And so this was something that he was always looking at ways to do these things. So the other thing that was really big early on, I think, was he was just in fact. about getting the best price for his product so that he could deliver the best product to the customer. He was like Stig said, just totally obsessed with the customer experience and the customers getting the lowest price as possible. So he went off just really hustling and cutting out as many middlemen as he could for the products that he was buying. And if he could cut out a middleman to buy underwear and put it in the store, he would

Starting point is 00:08:48 drive miles away. He would drive up to New York City to buy things. things and then he would drive back to put these things in his store just so he could market down a couple pennies. And that obviously had a big impact because now all of his competitors in the town couldn't match his price or at least not match his price and make a profit. So this is the stat that I think is just amazing. This first store that he opened, this Ben Franklin store, he started off with $80,000 in sales. And within three years, he bumped that up to $225,000. He started off. He opened that up to $2,000. thousand dollars just in three years just because of what he was doing and i mean he had competition

Starting point is 00:09:27 in the town i forget the name of the store that was across from his the funny thing is that st walton spent all his time it almost sounds like whenever you read the book or with john dunham the owner of the store and just learning he was just out there figuring out like how they were placing the goods how he was speaking to customers because he could see that he was a lot more successful than same was. So why wouldn't he just learn from the best game in town? And of course, that ended up being Sam in the end. So this is a great story that he started off with this first variety store. But in the end, he actually got kind of bamboozled with this. The landlord of the property that he was renting, the space that he was renting, was P.K. Holmes. And he was taking 5% of the

Starting point is 00:10:14 sales for rent. And Sam didn't know it at the time. But, you know, and I didn't know this, until I actually read this because I've never been in the retail side of things. But I guess 5% of sales for your rent is extremely high. And the number should be lower like three or two percent or something like that. Well, he went to renew his lease with P.K. Holmes. And Holmes obviously saw the change in the store that Sam had done. And he saw that the revenues had quadrupled from where he was at. And he declined to renew his lease at like any cost, like no matter what.

Starting point is 00:10:49 he was not going to renew his lease. And so Sam was obviously bent and just a little bit of a backstory on this. Evidently, P.K. Holmes was trying to give the store and the location to his son. So his son could basically take over what Sam had done. So Sam kind of left in a bad situation. And then he realized how important it is that he owned a lease that was longer than a couple years. So long story short, he went out there.

Starting point is 00:11:13 He started looking for other locations. He went to Bentonville, Arkansas to start another store. This time he started a five and dime. The first year, his sales were 72,000. The next year after that, it was 105, then 140, then 175. And as you can see, when he moved to Bentonville, he pretty much did the exact same thing all over again. The only difference was he got a hundred year lease with his new landlord. A little bit of a backstory on Sam's brother.

Starting point is 00:11:44 So Sam has a brother. His name is Bud. And Bud was also in the military, and he was a pilot. And so as Sam continued to grow this store, he started venturing off and opened another store. And he opened another store. These were just convenience stores. They were variety stores in the area. Walmart wasn't even a thing at this point.

Starting point is 00:12:05 But he was opening up all these little variety stores all over the place. And so then him and his brother, Bud, who was a pilot, they started getting in the aircraft and flying around. And they were scouting out properties through the air to find the highly-trial. trafficked towns and areas that they thought a store would do really well. And so that's how they started making decisions. And this flying became a real fascination and love in Sam's life, where clear up to the end, he was always flying around looking for store locations. And a lot of the store locations for a very long period of time were all scouted out and found by Sam Walton himself. Let's take a quick break and hear from today's sponsors. All right. I want you guys to

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Starting point is 00:16:50 All right. Back to the show. So one of the things I think we really need to add to this story is that Sam Walton was really targeting small towns at this point in time because he was so aware of the competition and the margins in his business. And it was just so much easier for him to make money in small towns. And I also think it was not just easy because the competition was not as tough, but also because he really understood the mindset and the buying behavior in these towns. One thing he pointed out where he really disrupted the industry.

Starting point is 00:17:28 That was in terms of price that we just talked about before. And I can understand if a lot of people are saying, well, I don't think the sale in Walmart is so much cheaper than some of the competitors, call it Costco or Target or whatever it is. But back then, it was a very, very different ball game. The middlemen that everybody used, especially in small towns, they charged 15%. So that was just, 15% was just really just the mug-up that you would put on top of that. And then another mug-up in terms of making money off the customer. And you still could compete with department stores easily. But he didn't care about that.

Starting point is 00:18:04 For him, it was not a question about being 2% cheaper or 3% cheaper that he could probably do. That was just not the strategy. really all about how to take the savings that he made in the first place by cutting up the mailman by cutting out everyone else and just delivering that to the customer. That was kind of how he grew up until he had 400, 500 stores. So the first Walmart was established in 1962 and Sam was 43 years old at this point. So when he first started his first store, he was 26 and he went all those years before actually starting his very first Walmart. And the model that he was really using was the mayor grocery store and the discount stores. He was kind of smushing that together

Starting point is 00:18:50 and that was his first store. And it was obviously very big compared to anything that was out there as far as size goes in square footage. And the thing that I took away from Sam, and this is kind of the Monish Pabri way of doing things, is he's a total cloner. Like, he comes up with a lot of original ideas, but it talked about in the book how whenever he would travel to Europe, he'd travel anywhere, his wife would have to fight him out of retail stores. Like, he would go into retail stores and he'd have a little recording device, and he would be talking into the recording device with all of his notes and everything that he was capturing on how they were selling certain products, why they had him positioned at this certain spot in the store. And then he would

Starting point is 00:19:32 take all those ideas back to his Walmart and incorporate him. So he was a continuous self-learner and always was trying to figure out a way to do something better by admiring other people in the way that they were doing things inside of their stores. And I think that that's a really important point that even though, I mean, you think about where he was at in this point in his life, I think it just goes to show you, even though you're on top of your game and you're crushing the competition, he was always on the lookout of like somebody can beat me and somebody can do something a better way. So how can I capture that and then incorporate it into my business? Yeah, one thing that just came back over and over again was how much debt he took on.

Starting point is 00:20:14 And, I mean, that's also one of the reasons why he could grow at that pace. It's interesting to consider how much money he made early on with the first stores. And for him, it was just not enough. I mean, he kept on growing and growing. I think there was even this part of time. I can't remember how many stores they had, but like they could definitely. have a very, very comfortable lifestyle from that point. And his wife talks about how he still took up, you know, he had debt up to his eyeballs. If something were to default, they would lose their home. I mean, he mentions that. And there was definitely also something that took his toll on him from time to time, but he was just a very matter of factly. That was just the way it was supposed to be.

Starting point is 00:20:56 He was definitely not the diversifying portfolio kind of guy. He went all in for Walmart. And I can't help or think that that faith in the concept in Walmart was something that trickled down to everyone in the organization. And that's something that he brought up in the book as the reason why the company ultimately went public is because once the business got so big, the debt was so colossal that he was starting to become uncomfortable with the amount of debt. And he just wanted to clear that and never have to worry about it ever again. And so at least that's why he describes it in the book, one of the driving.

Starting point is 00:21:33 forces to go public was that he could clear all those debts and he would know that he owned the entire thing outright, even though that it might not have been the best financial decision to keep going in that direction. He just wanted to be able to have the peace of mind to know that he has no debt obligations at all. And so that was interesting. I found that kind of surprising that that was one of the driving forces behind it. But, you know, once he put it in that context, it made total sense, especially when you

Starting point is 00:22:03 consider the size and I'm sure the leverage that he had used to get to the point that he was at. This was another interesting thing that I really enjoyed in the book was the way that he talked about how the buyers managed their inventory. And he provided an example in the book where he said, you know, we've got two stores in Panama City, Florida. One is a location that's right next to the beach. And then there's another one that's slightly into the town more that's not near the beach. and he said, you wouldn't imagine the difference in the buyers at these two locations,

Starting point is 00:22:36 even though they're a couple miles apart from each other. One location is trying to sell lawn chairs and all the beach items for all the tourists that are in town. And the other location is for all the locals. And so they're not buying those same types of items. And he said, if we just had a buyer at a regional level supplying the products to these stores, they would obviously probably not have the right product mix in these stores. But because the products that are being put into the stores are actually being decided by not the storeheads, but is actually being decided by the division managers inside of the store.

Starting point is 00:23:15 So like if you're the electronics division manager, you're the person who's actually working with the buyer at the higher level and saying, this is what I want, this is what I need, and then the buyer would just fill the order. And it shows you that he really tried to distribute the decision making to the lowest level possible. And this is a saying that we often say in the military is if you charge people with responsibility, they'll take responsibility. And so you look at Sam, he had this military upbringing, this military officer upbringing where you really place a lot of trust in your lower subordinates in order for them to accomplish certain missions. And when he designed his store, and he's telling these division heads, inside of the store, you're the person who's in charge of the product mix. And the product mix here at the Panama City store right next to the beach is different than the product mix to the one that's five miles down the road. That's really powerful.

Starting point is 00:24:11 And I think it shows you how successful that is. And then as those items would sell, each store had the ability to kind of say, hey, this is our product. We're really trying to push for this quarter. If one of those stores did well and they were able to push a certain product and have very good margins or whatever on that product, they would then take that information and distribute it to all the stores to let them decide or even test and try that same product mix to see if they could have the same kind of success. So the loop that they had in this process to distribute the decision making way down to the lowest level and then share the outcomes of all those miniature tests at all the different store locations, I think was a really profound point. And I think it just shows you how dynamic they were, even though they became a very large organization. And you would think that they wouldn't be operating very efficiently in the way that they'd be managing that. But it seemed like they did a pretty strong job with that.

Starting point is 00:25:06 Yeah, he has this great saying, think small. That's the only way you can become a big company. And I think that really sums up what you're saying here, Preston. So the thing that it immediately reminds me of is Jim Collins book Good, the Great, where he's talking about you've got to focus on the small, simple protocols. You've got to think very small and you've got to become an absolute expert at that small task so that no one can beat you at it. And then you just need to replicate it over and over. over and over again. And so, like, this is a perfect example of exactly what I think Jim Collins is talking about in his book. So something that I found interesting or funny was in the 1980s, Sam became the wealthiest person in America. You know, he was basically like your Jeff Bezos of today. And even though he was this wealthy superstar and he'd been building this business from nothing to what it was back then, he was not comfortable with, I think, a lot of the stardom. And I know his wife definitely was because he brought that up in the book numerous times.

Starting point is 00:26:10 And it was just, I guess the irony of all of it is he's building this massive thing. And he's starting to get a lot of recognition for it. And he does not want the recognition at all. And I found that just interesting. You know, perhaps that's one of the reasons why he became the richest man in America was because he was thinking small. He didn't think about becoming the richest. That was not his focus at all. And he has this short story where he talks about how focused the press was on him driving around in a pickup truck.

Starting point is 00:26:42 And he said, why is that a big issue? I mean, how else would I drive around my two dogs? I mean, I can't do that in Rose Roy. So, why would I buy one? I kind of like that story. All right. So let's talk about the top 10 lessons that Sam writes about at the end of the book. And I liked how he frames this because at the end of the book, he gets pretty personal.

Starting point is 00:27:00 And he's saying, you know, my health is not good. I want to talk about what it is that I learn. There's so much that I learned, but if I had to narrow it down to 10 things, this is what the 10 things would be. So the first thing he said was commit to your business. Believe in it more than anybody else out there, because if you don't, you're never going to be able to see it through. The next one that he had was share your profits with all your associates and treat them

Starting point is 00:27:26 as partners. This was a very big theme in the book. In fact, I think there was a couple times where he said that was like, the single most important thing that I think he ever did to grow the business to the level that he did was to give up a lot of equity of the business to the people that worked for him because that incentivized them to the point where everybody was on this machine. Everybody was moving in the same direction. And once you incentivize people when you got them all kind of pointed in the same direction,

Starting point is 00:27:57 the force behind that was almost impossible to steer in a different direction. And I think that's very hard for a lot of people to do, especially if they own all the equity of their business, is to start giving away some of that to some of their employees and people that are very instrumental in driving that thing, that business in the direction that they're going. And Sam Walton was a firm believer that if you don't do that, you're not going to be able to build something like he did. So the next one kind of goes, this is the third point. It kind of goes hand in hand with the second one.

Starting point is 00:28:28 He says, motivate your partners. money and ownership alone aren't enough. If things get stale, have people switch jobs, keep things interesting. I think what he's saying is you just don't have to motivate them with money. You can motivate them by doing things that are fun. Like one of the examples in the book was he lost the bet with one of his top executives. And whenever they were on Wall Street ringing the bell, he had to dress up in a hula skirt because he lost the bet. And so there he is, like with all these pictures and press and he's wearing like a hula skirt and dress.

Starting point is 00:28:59 and dressed up like he's in Hawaii. And people were like, what in the world is this? And he's like, oh, I lost the bet. So, like, they had fun. Him and his executive staff, like, they wanted it to be an environment that people wanted to go work at. And I think that that's a form of motivation in itself.

Starting point is 00:29:16 That's beyond the whole equity piece and monetary piece that often gets forgotten about as far as an instrumental piece that made them successful. And by the way, that bet was whether or not Walmart could sustain a 6% profit market. which is kind of outrageous in terms of, if you consider it what Walmart is doing. So I'm pretty sure he was the best dance he ever had in a hula shirt. I don't think he was so sad about it, really.

Starting point is 00:29:40 But really doing the unexpected and make Walmart a fun place to work, that was really important to him. And he talks about how all stole managers had the authority to basically do whatever they wanted to do in terms of drawing people into the store. They didn't need to ask for permission. And he came up with one example. It was probably not the most successful example, but it was one example where it was something like, if you can find the TV set somewhere in the Walmart store, you will get

Starting point is 00:30:10 it for free. And it turned out to be like people were more or less beating each other up, I think one even in the hospital or finding that TV set. But he created a lot of publicity and a lot of bus around Walmart. He talks about how he didn't really spend a lot of money on his marketing budget. The way that the brand was, and basically what happened, whenever Walmart went into town was, it was just free advertising because there were so much bust around all the events they're going to have,

Starting point is 00:30:42 the pricing, all the opening offers. It really just took care of itself from that point. So I think that there was a lot of branding involved in terms of how he built up the company. And that's just very clear from reading his book. So the fourth point that he brought up was communicate everything you possibly can to your partners. He talked about in the book the way that he went about this and that they had like this network system kind of set up that they could transmit messages like he could get in front of a camera, transmit a message to the entire workforce through video.

Starting point is 00:31:15 And this was a really important point. I think that when you don't communicate effectively and as often as possible, it's almost like the blood that flows through your body. And it's almost like you get a clogged artery when you're unable to communicate effectively to all the different branches. And I think that it's important to note that communication is a two-way street here. So it's not just from the headquarters down. It's also from the employees up to him. And he talks about how important that relationship is and talking to people at the lowest level to really understand what's actually happening in the business. He even talks about how he was concerned about the growth of Walmart because he's

Starting point is 00:31:52 He felt that was very, very important that he could personally fly out to the individual stores and just speak to the employees because there's only so much you can learn from speaking to store managers to understand the store to understand the customers. You really need to speak to the people working on the floor. And I think that really speaks the world of him whenever he talks about communication. Yes, he was also very honest and upfront in terms of how the store did and all the key ratios. and whenever he was setting that up. But it was really a button-up approach in many ways,

Starting point is 00:32:26 even though it really looks like and sounds like, you know, I have this strong leader and then everything just trickles down. I think it, especially during this phase in the 80s and 90s, it came from the employees. So there's a saying in the army that when your people stop complaining, that's when you have real problems.

Starting point is 00:32:45 And what this is really getting at is communication. So if people can't bring you their problems and people can't tell you what's wrong, it's likely because they know, A, you're not going to do anything about it. Or B, it's because they know you're not going to listen to anything. And so I think that this whole communication thing is extremely important. I mean, anybody who's run a business knows it's important, but an application is the hard part. It's very difficult. So his fifth point was appreciate everything your associates do for your business. I think this one is very close to points two and three with the equity, but I think it's going to the point where if you don't incentivize them monetarily or the other ways that we are kind of describing it, you just genuinely care.

Starting point is 00:33:32 Like when you're around your employees, you're just, you're thankful for them. And I don't know how you can teach a person to have that intention in their heart that they actually care for people. But I think that that's such an important recipe to his success is that he actually care. and would just go up and just he cared about his people. And he wanted to know how they were doing regardless of what the sales meant or how they were performing in the job. He just wanted to be good to them. The next one was celebrate your success and find humor and your failures.

Starting point is 00:34:03 Don't take yourself so seriously. The seventh one, listen to everyone in your company and figure out ways to get them talking. And this goes back to our communication points that we were talking about earlier. You can see how even though there's 10 points, a lot of them are closely related, very closely related. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up and customers now expect proof of security just to do business. That's why VANTA is a game changer.

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Starting point is 00:37:44 The next one, number eight, exceed your customer's expectations. And I think that this one is just massive. And I think that when we look at Jeff Bezos and what he's done with Amazon and knowing that this was a very instrumental book in his development of Amazon, you can see why when Bezos is sitting down at a boardroom table,

Starting point is 00:38:05 he literally leaves a seat open next to him. that no one can sit in that's reserved for the customer. So whenever they're having a discussion about bringing something new into their site or a new product or a new idea or whatever, everyone goes around the boardroom and they talk about why they think it's a good idea or a bad idea. And then Bezos basically looks at the empty chair and he says, well, what would the customer think? And then everyone tries to see it through the vantage point of the customer. And this is completely from, in my opinion, I might be wrong, but my opinion is I think Jeff, got that knowledge from Sam Walton's experience. Because in this book, he talks extensively about how you have to view things through the customer because the customer can fire every

Starting point is 00:38:46 single person. They can fire every employee, clear up through the chairman of the company, if you're not adding value to them first. And Sam Walton obviously understood that very well. The ninth one was control your expenses better than your competition. This goes to the logistics we were talking about. This talks about Sam cutting out the middleman. There was a lot of conversation about this in the book. And when you really look at the fundamental reason he was able to do the stuff that he was able to do with price, this is where he was able to do that. Then his 10th one, I love this because this really comes to investing, which is swim upstream

Starting point is 00:39:24 and go the other way. And for him, swimming upstream was really creating these discount stores, these large discount stores, in smaller towns. Because whenever he first started doing this, these kind of. stores were only in large towns. No one had really pushed that down into a smaller town. And that's where he was swimming upstream. He was saying, I think we can do this. And I think we can do this well, that we're going to have to manage our costs very closely. And sure enough, he tapped into a market that didn't exist.

Starting point is 00:39:54 He brother tells this story in the book about how it was custom back then to only be in one state. You still have the nationwide change, but for stores like Walmart, you typically only be in one. state and there was this almost unwritten rule that you wouldn't compete with another retail chain from another state because what would happen well, you would probably be press on the margins and who would want that? So what Sir Malton did was he rolled out in four states at the same time the second he got the chance. And for him, it was just, it was good. Whenever there was competition, it was not something he feared. It was something that he encouraged. Whenever you read the book, it's very interesting to hear how he smiles whenever he hears the thought of a new competitor

Starting point is 00:40:40 coming into town. He has this example about how he mocked down toothpaste for six cents per tube. And I generally love this story because he was so, you could just feel how much fun that experience was for him. He was not really talking about the first time he made a billion dollar in sales. Yeah, he mentioned that perhaps once or twice, but this story about how he marked down toothpaste and drove his competitor out of town, I mean, that was really what was driving him. He was just a merchant at heart. I mean, that's, I guess if anything, that's the secret. Yeah, I was surprised by this as well.

Starting point is 00:41:22 When I'm reading and you can see it just reeking off of the pages of like how excited he was about these random deals. We sold these lawnmowers. We accidentally purchased too many lawmowers, but we turned it into this challenge of selling all these lawnmowers. And like, you could tell in the reading how much he enjoyed that part of the business way more than him saying, oh, we had a billion dollars and sell. It was all about selling individual products at random stores in America that, like, you got to read the book to really have an appreciation for how much passion he had behind these deals. It was unbelievable. The highest rank of really one college that you can have in his book, that was being a merchant.

Starting point is 00:42:07 There's this section in the book about how the company needed. I think he referred to them as college boys, something like that. It was different and not the most flattering because he wasn't sure whether or not they would be off for the task of what it was all about being a merchant. That was the highest you could ever go. So if you just had a college degree, so what? You haven't proven anything. If you can't bargain on behalf of the customer, if you can't create value for the customer face to face, what are you there for? Or if you can't create a big giant display that just drives traffic from out of state to come down and see it. Like those are the kind of things that you could tell when he wrote the book, he's a merchant at heart. He thinks as a store owner, like an individual store owner, and then it was just copy and paste across the whole country. But awesome read. This was a fascinating read. This was a fun read.

Starting point is 00:43:01 It was very good. It definitely lived up to the expectations that I kind of had going into the book. One of the things that I found, if I was going to say one negative thing about this, it really goes back to a quote that Stig and I talked about on the show when we read Ray Dalio's book, which was, you can have anything, but you can't have everything. And when I think about Sam Walton, that quote really rings true. And what I mean by that is Sam wanted to have the biggest retail network on the planet. And guess what?

Starting point is 00:43:37 He did that. He absolutely did that. So he had anything he wanted, which was that. But he didn't have everything because you could tell, I think, for me, and maybe I read this wrong, and other people might read it differently. But for me, I think whenever he was looking back and he was reminiscing on, you know, what could I have done better in my life? He quickly breezes over like, yeah, I could have gone to more of my family functions. I could have done this better.

Starting point is 00:44:05 But, you know, I was just a merchant at heart. Like, this was in my DNA to do this. And I think he's kind of justifying at the end of his life as he's writing this. He's justifying that all the decisions he made were the right ones. And maybe they were. I mean, who am I to judge anything? But I guess I look at it back to my own life. And if I missed some of my kids special events in their lives and I put my business or

Starting point is 00:44:31 anything in front of that and made that more important than my family, I just don't know that at the end of my life, I could look back and say that I made all the right decisions. I think I might be a little suspect on some of that. And I think that you catch a glimpse of that at the end of the book. I don't know if Stig kind of read it the same way as I did. And then I'm flipping through because I got a hard copy of this as well. And I'm flipping through and I'm looking at some of the pictures. And then one of the pictures in the book was a picture of Sam receiving a medal from the president at the very end of, you know, this was very recent whenever he wrote the book that he had received this medal from the president on all of his accomplishments with Walmart.

Starting point is 00:45:09 And underneath of that was a caption that read, you know, receiving a medal from George Bush, the happiest day of my life. And like for me when I read that, I was just like, how in the world is that your happiest day? And you're like, how is it not the marriage to your wife or like the birth of your kids or, you know, something? I don't know. For me, there's no way any type of business achievement for myself would trump anything that's related to the two that I just mentioned. But in his book, I mean, it's clearly just, I mean, that's what it says. So I think it's important for people that hear these discussions because we talk about all these billionaires on our show. And these people are extremely polarized in what they do.

Starting point is 00:45:52 Every one of them. They're polarized in that they're building a monster enterprise. And to get there, they can have anything they want, but they can't have everything that they want. And I think that's so, so incredibly important for people to think about when they hear these stories. All right. So this is the point in the show where we take a question from the audience. And this question comes from Bennett. Hey, person and Stig, big fan of the show.

Starting point is 00:46:18 Just wondering your guys' thoughts about owning Berkshire Hathaway once Warren and Charlie move on from the company. Do you think that they are the competitive advantage and that it would be a good time to get out once they leave because most people can't keep up with their level investment returns? Or do you think that their teaching and way of thinking are so engraved in Berkshire's culture and way of thinking? So, Bennett, I love the question. And, you know, I'm kind of at a point where Berkshire Hathaway has gotten so big. And when you think about their competitive advantage, it's really been kind of being in the right equities at the right time and kind of managing the portfolio. But I think when you get to be such a large company to employ the capital in a manner

Starting point is 00:47:05 that beats the market, I think becomes an incredibly difficult task. So when you look at Berkshire's performance over the last 15 years, it really hasn't outperformed the market by an incredibly large margin. It's been barely consistent with like the S&P 500. I would suspect that that's going to persist. I think that for them to outperform the market in a major way is going to be very difficult for the new managers to do. And I think that the new managers are going to be extremely talented. Whether they're as talented as Warren and Charlie, I have no idea, but I think that they're going to be very talented people. I just think that they're fighting a fight with their hands tied behind their backs.

Starting point is 00:47:47 You know, like that's a hard thing to do even if you're really talented. And Warren and Charlie talk about this at the shareholders meeting. I think that they would never maybe come out and explicitly say it as the way that we just might have said it. But I think that they kind of see it that way. I mean, think about it because their market cap within 10 years will be maybe a trillion dollars, right? I mean, for where they're at now, it really depends on what happens on a macro sense. But if the company keeps growing, it's going to be very big. And so how do you employ that much capital and work deals that are severely undervalued?

Starting point is 00:48:18 I guess I'm not convinced that that can be done easily. Just an example, you know, one of Warren Buffett's famous investments, that's the one in American Express. And back then, he put in 40% of the portfolio that he had. He can put 40% of his portfolio in something that's significant. the undervalue today. I mean, that's simply impossible. And since he can't do that, no, he can't make the same kind of return. Bennett, I think you're right in the sense that Berkshire Hathaway has a competitive advantage having Warren Buffett and his brand, but it's probably not as significant as it has been. I mean, if you think of the deal that was made with Bank of America

Starting point is 00:48:58 during the financial crisis, I'm pretty sure it's because of Warren Buffett's name and brand, if you like that he could provide stability to the market, that he could get the warrants in Bank of America for, I want to say, $7 each. And it's trading in like the mid-20s now. So, yeah, that $17 billion that he wouldn't have gotten otherwise, I guess, even with a new manager as talented as him because he doesn't have the same track record. I think you will see less and less of like one-time deals like that in the time to come. I think the only way you're going to get the company to outperform the index is if

Starting point is 00:49:35 For whatever reason, the price is punished really badly because of news that would come out. A perfect example would be just recently. So Berkshire was down really hard recently because of the Wells Fargo news that came out with the Fed limiting their growth. And so Berkshire took a huge hit. But when you take a step back and you look at how much stock Wells Fargo makes up of the overall Berkshire portfolio, I think that the company was severely punished relative to the rest of the market in that price movement. So if you have opportunities to buy it because of news like that might come out or the news might be something much worse with reference to Warren or Charlie, you might have an opportunity to buy the company at a much better price. And I think that the performance is still going to be there, whether Charlie and Warren are there or not.

Starting point is 00:50:22 So Bennett, thank you so much for asking your question. We want to give you a free course at our website, the TIP Academy on our navigation tab. If people go there and they want to check out some of the different courses we have, we're going to give you the information. intrinsic value course that we have. This is a paid course, but we'll give it to you completely for free for your great question. If somebody else wants to ask their question on the show, go to Asktheinvestors.com, you can record your question there. And if it gets played on the show, you get a free course. Also, talking about Berkshire Hathaway, we're having our TIP event at the Berkshire Hathaway shareholders meeting this year in May. It's May 5th. If you want to go, you need to put your stuff together now. You need to buy your plane tickets now and you need to book your hotel now because

Starting point is 00:51:04 it starts filling up a lot as you get closer to the event and it's harder to get the space to stay there. We don't charge anything for people to go to this with us. The only thing that will cost you money is really your plane ticket out there at your hotel. And then we have a dinner Friday night and I think it's what $30 or something to go to the dinner so that we can pay for the food and pay for the space that we rent out. So we would love to have you guys go there. Going to the meeting is a lot easier than you think. You don't have to own a 300. $800,000 A share to go to the meeting. You can just own a B share. Also, people that are going sometimes have extra credentials. So if you go on our forum, we have a link on our page there if you want to go

Starting point is 00:51:45 to our forum and see if somebody else can get your credentials if you don't own a B share or whatever. We can help find a way for you to go. Don't think that that's a limiting factor. The limiting factor is just buying your plane ticket and getting a hotel out there. So come join us. This is so much fun. We do a pub crawl Saturday night. We go to the media. We see all this stuff. It is so much fun. You guys are going to have a blast. I guarantee you.

Starting point is 00:52:09 And it's the ultimate networking event. So don't miss this thing. You're going to have a blast. We got information on the site. Just go to the site. You can find that. And if you go to tip burkshire.com, that address will take you straight to the page where you can sign up and learn more information about this.

Starting point is 00:52:25 So that's tip burkshire.com. Check it out. We'd love to meet you in person and hang out with you. All right, guys. That was all that press on I had for. this week's episode of The Investors Podcast. We see each other again next week. Thanks for listening to TIP.

Starting point is 00:52:41 To access the show notes, courses, or forums, go to theinvestorspodcast.com. To get your questions played on the show, go to Asktheinvestors.com and win a free subscription to any of our courses on TIP Academy. This show is for entertainment purposes only. Before making investment decisions, consult a professional. This show is copyrighted by the TIP Network, written. permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP178: Sam Walton - Made In America - The Story of Wal-Mart (Business Podcast)

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