Walmart de Mexico
Despite the generally poor performance of many emerging markets, one of our Mexican holdings has become very expensive relative to our appraisal of its intrinsic value, even when accounting for the decline of the peso versus the dollar. Subsequent to year-end, we began liquidating our position in WalMart de Mexico (“Walmex”), and we expect to have completely exited it by the time you receive this letter. We first purchased this remarkable business in 2007, and it has more than doubled in value since then. The first time we visited Monterrey, Mexico, we asked the management of Soriana, Walmex’s next-best competitor, all about their business. The recurring undertone of the discussion was that Walmex was light years ahead of Soriana in all phases, and Soriana was using Walmex as a model for what it should be doing. We visited Walmex’s management the following week in Mexico City and were blown away by the sophistication of all aspects of their business. Since then we have made hundreds of store visits to Walmex’s various formats as well as to Soriana’s and to those of other competitors, including the informal market. We have seldom seen a company with competitive advantages as big as those Walmex enjoys — larger than even the advantages Wal-Mart (US) had over its domestic competitors in 1990. The combination of exceptional operations, the accumulated knowledge of best practices, a deeper management team, and superior access to capital makes Walmex truly an extraordinary business and perhaps the finest large company in the world. In fact, Walmex has significantly outperformed our most optimistic expectations over the last six years. Nonetheless, at the current price we no longer feel that the company trades at an adequate discount to our appraisal of its intrinsic value, which regrettably leads us to sell the business. We hope one day to buy it again when the price provides an appropriate margin of safety.