Home Depot: The best-performing stock in the S&P 500 since IPO (Audio)

Home Depot is framed as an outlier in American retail: a North America-only specialty retailer with about a $350 billion market cap, 470,000 employees, and the best total-return performance of any stock in the S&P 500 since its 1981 IPO. The host argues that the company’s extraordinary compounding came from a simple but revolutionary insight: homeowners would buy far more if all the needed materials for a project were available in one giant warehouse at low prices.

The founding story begins with Bernie Marcus and Arthur Blank, two retail operators who were fired from Handy Dan after its parent company, Dalin, collapsed under 1970s stagflation and retail turmoil. Marcus had built a reputation as a strong merchant, Blank as a finance and operations talent, but neither had meaningful equity. Ken Langone, a Wall Street banker with a habit of backing entrepreneurs and buying aggressively when he liked a business, spotted Handy Dan’s strength, bought up nearly 20% of the stock, and then was effectively the catalyst for Marcus and Blank’s firing when the new CEO regained control.

After the firing, Langone pushed Marcus to turn the crisis into a startup. Saul Price’s Price Club showed the warehouse model’s power, but Home Depot would differ by carrying a huge assortment of SKUs and educating customers on how to use them. Ross Perot nearly funded the venture, but a dispute over management style and even a Cadillac blew up the deal. Langone then syndicates the capital himself, and the team expands when they discover Pat Farah, the wild Homeco operator whose merchandising genius completes the founding “Avengers” lineup.