If you were to own only one stock – Finance

Government administered retirement programs are always inadequate. You pay contributions throughout your life in the hope of getting social security/pension. But two things work against you – an aging population with more payments due and inflation. You could look at various alternatives – keeping your savings in the mattress, certificates of deposits, loaning it on interest to relatives, bonds, properties, stocks etc. The list goes on and on. However, the best is to invest in stocks. Stocks have grown over long term and have returned more than the inflation rate. This is exactly what you want.

You need to own stocks that will keep growing and providing capital appreciation, so your nest egg keeps growing. Let us say you invest $10K today – this will grow to $50 over a period of 10 years, if you have an average return of 17%. You could look through the past and come up with several stocks that have delivered this kind of return. But that is not enough. You should be able to look at it and with reasonable certainty say that it will continue to deliver the same kind of returns in the future.

Let us look at what we want in a company that would deliver these results. Should be a Large cap company, size has advantages, should have grown in all phases of the trade cycle, including slow downs, should have a market base that keeps growing, should have products that are in day to day usage, should have the ability to crush competition, and great cash reserves, and last but not the least a great business model.

There is only one company that today fits the bill. That is Wal Mart. The conglomerate that some hate, some love, but is not going away. This is the largest retailer in the world, sells 40% of Hollywood’s DVD output, the largest retailer in the states. Their business model is straight and simple. Offer merchandise at the lowest price. It is very difficult to find areas to grow when you are a $300B company. But they sell day to day products. They sell more tobacco, candy, toothpaste, detergent, and pet food than anyone else in the country. The common man makes his pay go a little further when he shops at Wal Mart. They have grown by 15% over the last 10 years. Their international business also grows by 25% annually.

The share price was at its highest at $70 in 1999 with a P/E of 35. P/E is the multiple that a buyer is willing pay in terms of earnings per share. Say a company earns $2 per year. If a willing buyer pays $70 for the share he is paying 35 times the current annual earnings per share.

Today it is quoted at $57 – a P/E of 18. When I look around for the one share that I can buy without looking at the financial statements every month and the share price everyday it is Wal Mart. They have also made it very easy for you to invest. You could buy shares directly in this company by investing $250 through Computershare.com. You could sign up for monthly investment of $25 for at least 10 consecutive months. They will reinvest your dividends too.

Article summary :

If you were to invest in only one stock, this is it.