The Opportunity Cost Of Not Investing In Walmart Early - Walmart Inc. (NYSE:WMT)

We wrote recently that one of our holdings - Walmart Inc. (WMT) would eventually ramp up the growth rates of its dividend. We stated this because of the encouraging numbers we saw in the company's first quarter.

Walmart in recent years really invested itself into transforming its business. It saw how eCommerce sales were trending and decided to align its business with this clear trend instead of against it. This decision resulted in a huge spending spree which saw the firm buy up many eCommerce companies including the $3+ billion purchase of Jet.com.

I spend a lot of time in Spain where pensioners make up close to 20% of the population. The number I believe in the US is lower at closer to 15%. Despite the fact that people are living longer, we believe that more and more pensioners will embrace technology as the years go by. At present, I would fathom that the amount of pensioners using eCommerce is only a fraction of what it will be going forward. This is something that the traditional brick and mortar stores need to take into account in our opinion.

Until we get there, Walmart has the luxury of being able to service these customers with their thousands of offline stores. Furthermore, the firm has laid a digital foundation from which it really will be able to deliver when real scale comes.

Therefore, irrespective of the firm's valuation which has only increased from the huge rally shares have enjoyed in June thus far, let's discuss the lost opportunity cost a young person would have by not beginning to invest right now in this retailing behemoth. Remember the biggest advantage a young person has is time. Having bucket loads of time enables compounding to occur much more aggressively than otherwise.

However, we all know that once a 20 to 30-year-old for example begins to earn money, there are a host of temptations out there for that hard-earned capital. From cars to holidays to clothes, etc., everything is fighting for one's after-tax dollars. Then comes the day when one wants to move out of their parents' home. Does one have the maturity to rent solely a bedroom for example or a humble low-priced apartment or does the person get whatever he or she can afford? The decisions people make between 20 to 30 years are crucial with respect to where they want to be when they are in their fifties for example.

We get what we deserve in life, not what we want. Everybody wants at least a minimum level of wealth but unfortunately few are willing to put in the sacrifice to get it.

So just say we have two 20 somethings (Let's say they are 23) who are fresh out of college and earning a steady income. Tom has been dreaming about a BMW for years so decides to buy a $26,000+ automobile where monthly payments of $350 a month over 7 years as well as a $3k up-front payment are required to seal the deal (Works out that Tom actually pays $6k more in the end when you factor in the interest). Jim though wants to make his money grow and decides to invest $350 of his monthly income into Walmart. He does this because of the numerous success stories from shareholders he has heard of through the vine.

Therefore, let's say that Jim invested the exact same amount of capital that Tom used on his BMW. That would be $3k of initial capital along with 84 monthly installments of $350. Well if we go back 7 years to 2012 and work out what the total sum would have come to today (assuming all dividends were re-invested in WMT), we would get the following sum. $51,735. Remember only $32,400 of Jim's own money was invested during that time-frame. Even if we took a different 7-year spell (from 2006 to 2013 for example) which would have included the 2008 crash, the number would have come to $49,557.

Here is the kicker though. If Jim left any of these totals and added no more to the portfolio (except obviously the dividend being thrown off) for a couple of more decades, the returns would be outstanding. Why? Because he now has the two elements in order to really get compound interest in gear.

To conclude, they say delayed gratification is a sign of maturity. Jim never said he didn't want the stylish car. He just wanted to get it his way. Investing does not have to be complicated if one has a long-term view. Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish. On the other hand, Tom has a car probably worth in the region of $5,000 after his 7-year stint. This is what he has to show for his $32,400 investment. Which way (if you are in a similar situation in your life), are you going to veer?

Disclosure: I am/we are long WMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Seekingalpha.com

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