Have the Discipline to Say No 135The Whole Foods Company: An Exercise in Patience
It’s easy to see why maintaining the discipline to stay inside your circle
of competence signifi cantly aids investment success. Investors who
have taken the time and effort to completely understand a particu-
lar business and the characteristics of its operating environment will
focus more attention on the performance of the business and not the
performance of the underlying stock price.
Consider Whole Foods or any other business that you are famil-
iar with. I’ve shopped there for years and have visited many stores
for lunch when I’m traveling so I’ve gotten to see the quality and
passion the company has for its products and services. Until recently,
Wall Street seemed to hold similar admiration for the company.
With the economy fi rmly in a recession in 2008, however, Mr. Market
hates the uncertainty that surrounds a business that sells premium
priced foods. For the fi rst time since going public, Whole Foods is
trading very close to book value.
I consider the company well within my circle of competence. So
far I’ve maintained the discipline to say no because I felt the market
had always afforded Whole Foods a premium valuation based on its
unique long-term growth prospects. So while growth may contract for
the next year or so, the price now creates an opportunity for great
value and satisfactory returns over a multiyear horizon. What does
all of this mean? If I invest in Whole Foods today, and next month the
stock is down 40 percent, I wouldn’t think twice about selling (except
for an abnormal occurrence, such as fraud, etc.). If anything, I would
be thinking about whether to add to the investment. Without getting
into unnecessary detail for purposes of this chapter, my reasoning is
straightforward. First, I am buying a business at book value that I’m
confi dent will be worth substantially more than book to any private
buyer. During the end of 2008, the enterprise value of Whole Foods
(market value plus the net debt) was about $2.2 billion. What does
this enterprise value get you? How about 275 stores located in some
of the most desirable locations in the country that generate over
$8 billion in annual sales. Not only that, Whole Foods has spent mil-
lions of dollars marketing itself as the number-one purveyor of foods
and products to consumers oriented to the healthy lifestyle. In the
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