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Building Wealth without Diversifying: The Story of Sam Walton

Updated: Apr 6, 2023



Sam Walton is one of America’s great stories. He is the incarnation of the American Dream in the twentieth century. He is mainly famous for having founded Walmart, which is the largest retail store in the world. Born in rural Oklahoma, Sam Walton built a retail empire from nothing. He created a retail business that would sell commodities below market value. This strategy to cut prices sharply became an instant success as it made commodities readily available to consumers. As a result, Sam Walton became insanely wealthy. By the time of his death in 1992, Sam Walton was worth $8.6 billion. How did he manage to achieve such unprecedented levels of wealth knowing how he started? What strategies did he use to become this wealthy?

When building wealth, it is usually advised to invest in different asset classes rather than investing in only one asset class. In other words, it is usually not recommended for one to have “all of his eggs in one basket.” This is because investing does not come without risk. When investing, there is a strong chance that the investment may not be fruitful, and the money is lost. Thus, investing in only one asset class is a huge risk because the potential loss could outweigh the reward. This is why it is usually recommended to invest in several asset classes so that when one asset class isn’t performing well, the other asset class(es) will cover the loss incurred by the underperforming asset class. This is the standard strategy of investing.

Sam Walton, however, disagreed with that approach. Indeed, all of his wealth was tied to Walmart. He did not invest in other asset classes but in his business. This was certainly a very risky bet. If Walmart went bust, the Walton family would have been completely financially ruined. Indeed, Sam Walton was in debt up to his neck. If the business failed, he would have had to pay back his creditors, and failure to pay back his creditors would have resulted in the seizure of his property and the assets of the business. Sam Walton was a man who had a very narrow approach. He was an all-or-nothing man like Cornelius Vanderbilt.

Walmart’s success is based on two strategies: (1) Sam Walton’s slashing-price approach, and (2) systematic reinvestment of profits back into the business. This was the exact strategy Cornelius Vanderbilt used to build his shipping business. Slashing prices below market value would compel consumers to buy his products at a cheaper price than his competitors. And reinvesting profits back into the business increases the business valuation as well as the cash-flow needed to sustain its operations. Most business owners apply these two strategies, but unlike Sam Walton, they usually have their investments tied to other asset classes than their own businesses.

The strategy of Sam Walton makes but it is a strategy that I wouldn’t recommend, nevertheless. As was aforementioned, Sam Walton was a narrow-minded and stubborn person. He possessed strong willpower and had an unshakeable vision of what he wanted to achieve. It was these characteristics of his personality that made him go all in into creating Walmart. It was a “succeed or die” situation. His risk tolerance was extremely high for his business because he was adamantly convinced that Walmart was going to be a success by all means necessary. At the end of the day, the retail tycoon wasn’t wrong, but it takes a special kind of people to use the approach he used. Sam Walton showed us that it is definitely possible to build wealth without diversifying but it is a very risky strategy that 99% of people would be able to sustain.

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