Well, it's the end of the month. And you know what that means. Wells Fargo sends our statement and we get to be Capitalist Pigs For A Day. Last May 21 we sold our nest and all of the eggs. After settlement, while we waited in the lobby of the title company, two checks were cut and wired to a Financial Planner on Riva Road.
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| You just can't beat it. |
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| Ask him |
He had been recommended to us by some friends so we set up an appointment. When we told him we weren't looking to get rich, 3-5% return would do us nicely, he chuckled and said we were looking for the same Holy Grail that everyone else was looking for. We settled on a managed mix of conservative stocks with some upside potential and a long-established record of paying dividends. (Toward the end of the month I begin to sound like CNBC).
I toyed for a few minutes with putting some money in the Seven Deadly Sins fund.
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| Bruegel's Seven Deadly Sins |
All in all, after six months we are pleased with our returns, though "past performance in not indicative of future returns" and everything is on paper. We haven't taken any gains and we reinvest all the dividends.
Now, I like to believe that I am not naieve about Capitalism. I learned the theory from Arthur Jensen and the practice from Marine Corps General Smedley Butler.
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| Ned Beatty as Arthur Jensen |
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| Smedley Butler |
I spent 33 years and four months in active military service and during that period I spent most of my time as a high class muscle man for Big Business, for Wall Street and the bankers. In short, I was a racketeer, a gangster for capitalism. I helped make Mexico and especially Tampico safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefit of Wall Street. I helped purify Nicaragua for the International Banking House of Brown Brothers in 1902-1912. I brought light to the Dominican Republic for the American sugar interests in 1916. I helped make Honduras right for the American fruit companies in 1903. In China in 1927 I helped see to it that Standard Oil went on its way unmolested. Looking back on it, I might have given Al Capone a few hints. The best he could do was to operate his racket in three districts. I operated on three continents.
What I find interesting in all this is how my worldview becomes bifurcated as we approach the end of the month. What I find appalling, reprehensible, even criminal on the 29th suddenly seems very understandable on the 30th. For instance: yesterday Fran and I discussed several stories in the news recently spotlighting Walmart's decision to buy back some $15 billion worth of their own stock over the past two years. If, instead of buying back their stock, the Walmart board had wanted to, they could have given every frontline employee a raise of almost $7.00 an hour to an average wage of just under $15 an hour. And Walmart could have done this without raising their retail prices even a penny. We are talking about 2.2 million employees. If Walmart were a country, it would be the 19th largest economy in the world. Of every US dollar spent, 8 cents is spent at Walmart.
Yet all of us subsidize Walmart by providing food stamps and Medicaid to many of their employees who work all the hours they can get and still don't make enough to take care of their families. States and local communities subsidize Walmart.
A secret behind Wal-Mart’s rapid expansion in the United States has been its extensive use of public money. This includes more than $1.2 billion in tax breaks, free land, infrastructure assistance, low-cost financing and outright grants from state and local governments around the country.
The Bangladeshi factory that burned down and the one that collapsed causing more than 1300 deaths were both Walmart suppliers. Faded Glory jeans, a Walmart brand, were found in the debris. Walmart pleaded ignorance to the safety conditions in those factories and maintained that they were unaware those factories produced for Walmart under subcontract.
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| Mass funeral for the Bangladesh factory fire victims. |
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| Collapsed Bangladesh garment factory |
Even if you discount the most sensational stories, Walmart represents 21st Century American Capitalism at its....... most capitalistic.
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On the other hand, there are about 3.25 billion shares of Walmart stock out there. Almost half belongs to the Walton family. The rest of the shares are owned by 10's of millions of people either through individual ownership or through investment, pension or retirement plans like Calpers, the California public employees retirement system. As of yesterday, Fran and I own 27 shares of Walmart. |
| Hugh Jackman at the 2013 Walmart Annual Meeting. Fran: I'm so sad about this. |
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| Hugh Jackman and Tom Cruise at the Walmart Annual Meeting |
We do not pay performance fees for celebrity guests..... The company does cover hotel and travel expenses, but otherwise pays celebrities only in exposure for their latest projects....
Every entertainer that is here has something to do with our business... There’s some connection from the business, whether it’s CDs, books, or t-shirts.” Film studios and record labels “really work with us” to recruit the talent.
In 2012 Justin Timberlake hosted and in 2011 it was Will Smith. In previous years Taylor Swift, Celine Dion, and Arrowsmith have entertained. The benefits of owning Walmart extend beyond the obvious. (End Digression.)
The obvious benefits are dividends and stock appreciation. This year (half year in our case) our share of Walmart's profit is $1.88 a share. Last year it was $1.59 a share. Walmart has paid a dividend every quarter since 1974. And that dividend has increased every year since 1974. Ask Andrew Carnegie; dividends are a big deal:
“This was my first investment. In those good old days, monthly dividends were more plentiful than now and Adams Express paid a monthly dividend. One morning a white envelope was laying upon my desk, addressed in a big John Hancock hand to ‘Andrew Carnegie, Esquire’. At one corner was a round stamp of the Adams Express Company. I opened the envelope. All it contained was a check for ten dollars upon the Gold Exchange Bank of New York. I shall remember that check as long as I live…it gave me the first penny of revenue from capital – something that I had not worked for with the sweat of my brow. ‘Eureka!’ I cried. ‘Here’s the goose that lays the golden eggs.’
And if you bought 100 shares of Walmart in 1970 at $16.50 a share, you would now own 204,000 shares at $81.01 as of 11/29/13 due to stock splits and dividend re-investment. (Who had $1650 in 1970?) That's a lot of golden eggs.
The thing is, Walmart never promised anyone a rose garden. They never promised a garden at all. Their Mission Statement is:
Saving people money so they can live better
That certainly is simple enough. In fact, Strategic Management Insight, a consulting company that helps companies develop their mission statements, gives Walmart only a 1.2 out of a possible 4.5 score for the Mission Statement. Strategic Management thinks it sucks.
If, like us, you were about to get a dividend check you might call Walmart's mission statement focused. Compare Walmart's minimalist Mission Statement to Home Depot's :
The obvious benefits are dividends and stock appreciation. This year (half year in our case) our share of Walmart's profit is $1.88 a share. Last year it was $1.59 a share. Walmart has paid a dividend every quarter since 1974. And that dividend has increased every year since 1974. Ask Andrew Carnegie; dividends are a big deal:
“This was my first investment. In those good old days, monthly dividends were more plentiful than now and Adams Express paid a monthly dividend. One morning a white envelope was laying upon my desk, addressed in a big John Hancock hand to ‘Andrew Carnegie, Esquire’. At one corner was a round stamp of the Adams Express Company. I opened the envelope. All it contained was a check for ten dollars upon the Gold Exchange Bank of New York. I shall remember that check as long as I live…it gave me the first penny of revenue from capital – something that I had not worked for with the sweat of my brow. ‘Eureka!’ I cried. ‘Here’s the goose that lays the golden eggs.’
And if you bought 100 shares of Walmart in 1970 at $16.50 a share, you would now own 204,000 shares at $81.01 as of 11/29/13 due to stock splits and dividend re-investment. (Who had $1650 in 1970?) That's a lot of golden eggs.
The thing is, Walmart never promised anyone a rose garden. They never promised a garden at all. Their Mission Statement is:
Saving people money so they can live better
That certainly is simple enough. In fact, Strategic Management Insight, a consulting company that helps companies develop their mission statements, gives Walmart only a 1.2 out of a possible 4.5 score for the Mission Statement. Strategic Management thinks it sucks.
If, like us, you were about to get a dividend check you might call Walmart's mission statement focused. Compare Walmart's minimalist Mission Statement to Home Depot's :
If Walmart set the bar low, there is no place to go but up. HD, on the other hand set the bar unrealistically high for the long term.
Back in the day, when The Home Depot was still run by the founders, Bernie Marcus and Arthur Blank, when you went into your final job interview with the store manager you were asked how much money you wanted. They either gave it to you and hired you or they didn't give it to you because they didn't hire you. There was no negotiating. Employer and employee agreed on the employee's value as the beginning basis of a relationship. This definitely reflected the values of Taking Care of Our People and Doing The Right Thing. But when shareholders, like us, find their interests competing with seven other touchy-feely core values they often take their capital gains and run.
When the good times stopped rolling and Bernie and Arthur retired in the early 2000s, the new CEO, Robert Nardelli, found a huge company with almost 2000 stores that didn't even have company-wide email not to mention other basic cost control systems. Shareholder value was eroding and the stock price reflected this. His struggle to pull HD into the 21st Century and reverse the decline in shareholder value was daunting. Nardelli resigned in 2007 with a $210 million severance. Nardelli moved on to take Chrysler into bankruptcy and to collect another huge severance package. Home Depot was left a demoralized shell. Most of the experienced, fairly paid longtime employees and managers who bled Orange were gone.
Walmart, in the 2011 Annual Report made no bones about where they were headed and how they were going to get there.
Back in the day, when The Home Depot was still run by the founders, Bernie Marcus and Arthur Blank, when you went into your final job interview with the store manager you were asked how much money you wanted. They either gave it to you and hired you or they didn't give it to you because they didn't hire you. There was no negotiating. Employer and employee agreed on the employee's value as the beginning basis of a relationship. This definitely reflected the values of Taking Care of Our People and Doing The Right Thing. But when shareholders, like us, find their interests competing with seven other touchy-feely core values they often take their capital gains and run.
When the good times stopped rolling and Bernie and Arthur retired in the early 2000s, the new CEO, Robert Nardelli, found a huge company with almost 2000 stores that didn't even have company-wide email not to mention other basic cost control systems. Shareholder value was eroding and the stock price reflected this. His struggle to pull HD into the 21st Century and reverse the decline in shareholder value was daunting. Nardelli resigned in 2007 with a $210 million severance. Nardelli moved on to take Chrysler into bankruptcy and to collect another huge severance package. Home Depot was left a demoralized shell. Most of the experienced, fairly paid longtime employees and managers who bled Orange were gone.
Walmart, in the 2011 Annual Report made no bones about where they were headed and how they were going to get there.
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| At Walmart you only have to keep your eye on three things
And this brings up back full-circle to that stock repurchase plan. Under "Returns":
One of our priorities is returning value to shareholders through dividends and share repurchases.
Over-simplifying, fewer shares means the profit pie can be cut into fewer pieces so each share gets a larger piece. Assuming that there were no better investment opportunities for Walmart and those $15 billion, "THE MARKET" just might see Walmart shares as relatively more valuable. The stock price goes up. Yea! The dividend goes up. Yea again!
And about those Walmart employees and those firetrap factories in Bangladesh? Its a new month. I can afford to be indignant again.  |
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