Imagine if the grocery store, the cell phone provider, and biggest national construction outfit were all owned by the same company—you could buy just about anything and never have to enrich any competitors. That's essentially the situation in Mexico, where one of the world's top-five richest people, Carlos Slim Helú, resides.
Slim’s net worth is $50.7 billion, as of September 2016. His savvy, yet no-nonsense investment philosophy and impeccable track record as an investor have earned him the nickname the "Warren Buffett of Mexico."
He is primarily known as the chairman and chief executive officer of Teléfonos de México, S.A. (Telmex), which handles between 80 to 90% of the landline phone calls in Mexico, and América Móvil (AMX), which is responsible for 70% of the cellular traffic in the country. However, his business interests are far more comprehensive, reaching into every nook and cranny of the Mexican economy, and beyond. It is estimated that 40% of the listings on the Mexican Stock Exchange are companies that he in some way controls.
Grupo Carso or Grupo Sanborns SAB, Slim’s conglomerate, owns and operates businesses in education, media, sports and entertainment, healthcare, manufacturing, real estate, airlines, mining, hospitality, technology, oil, retail and financial services. How he amassed his multi-billion dollar wealth is a study in both business acumen and political connections.
Carlos Slim was born on Jan. 28, 1940, in Mexico City, Mexico. His parents, Julián Slim Haddad and Linda Helú Atta, were both Maronite Catholics of Lebanese descent. Carlos’ father, born Khalil Salim Haddad Aglamaz, was sent to Mexico in 1902 to avoid being drafted into the Ottoman Army. After arriving in Mexico, Carlos’ father changed his name to Julián Slim Haddad.
The family was part of a small, but commercially prosperous, community of Lebanese Christians who poured into Mexico in the late 1800s and early 1900s.
In a community devoted to commerce, Julian Slim was a natural, opening a dry goods store in 1911, which grew to offer more than $100,000 worth of merchandise just ten years later. With proceeds from the store, he would go on to buy prime real estate in Mexico City for a pittance during the 1910-1917 Mexican Revolution.
His savvy investments in real estate, along with his continued success as both a retailer and a wholesaler made Julián a rich man, with a net worth of more than one million pesos.
From a young age, Carlos took an interest in his father’s business. And his father happily obliged with business lessons about management, reading financial statements and keeping accurate financial records.
In 1953, when Carlos was only 13-years-old, his father died. However, after his father’s death, the young man continued to work for his late father's company, which would ultimately be passed on to him. When Slim graduated high school, he went on to the National Autonomous University of Mexico, where he studied civil engineering while teaching algebra and linear programming as well.
While studying civil engineering, Slim also took an interest in economics, taking a series of courses on the subject in Chile after he graduated in 1961. He went into finance shortly afterward, working long, grueling days as a stock trader in Mexico City.
By 1965, at the age of 25, his trading had netted him roughly $400,000, close to $3 million in present dollars. He used the money to open his own brokerage firm, called Inversora Bursátil. It was his first business. (For more, see: How Carlos Slim Built His Fortune.)
Slim’s Success Story
Slim became a billionaire during the 1982 currency devaluation and economic crisis in Mexico by investing aggressively and buying entire companies that would soon recover. He was 42 at the time.
Slim’s next big opportunity came in 1990 when the Mexican government sold off its monopoly telephone company, Telmex. Slim’s Grupo Carso pounced on the opportunity. (For more, see: Is It the End of the Mexican Telecom Monopoly?)
Soon after the purchase, Slim took an interest in Telmex’ cellular service. By offering prepaid phones, the company’s customer base exploded, growing by 66% every year for the next 15 years. The cellular business, América Movil, with its TracFone brand, has expanded around the world. Altogether, telecommunications accounts for roughly two-thirds of Slim’s staggering wealth. However, América Movil has weathered some new challenges recently as a result of new Mexican legislation aimed directly at breaking up the company’s monopoly.
A Wide Reach
Slim has a hand in literally hundreds of other companies, largely through Grupo Carso SAB, Slim’s global conglomerate. Grupo Carso has stakes in enterprises as diverse as Elementia, one of the largest cement companies in Mexico, a hand in retail (via Sears), energy and construction (via CICSA) and automotive (via Grupo Condumex). He has a sizable stake in Saks Fifth Avenue and even bought 17% of the New York Times.
Perhaps the biggest piece of Slim's wealth comes from telecommunications. Slim is the owner of América Movil, formerly Teléfonos de Mexico, or Telmex. Telmex was the old telephone monopoly in the country, akin to America’s AT&T Inc. (T). In the 1990s, the government privatized the company, and Slim was one of the initial investors, via Grupo Carso (the other members of the consortium were France Télécom and Southwestern Bell Corporation). The price: $1.8 billion, half of which was put up by Grupo Carso, for a 20% stake. Carlos Slim was at the helm of Grupo Carso, and as such took over at Telmex.
By 2012, América Movil, Slim's mobile telephony company, had taken over Telmex and made it into a privately-held subsidiary. América Movil, via the subsidiary Telcel, has a market share approaching 70% of the mobile phone line market, and 80% of the landlines in Mexico. Now the company is poised to sell assets to bring its market share below 50%, in the wake of new anti-monopoly regulations in Mexico. But Slim is probably not upset that the various assets, such as cell phone towers, could easily bring in $8 billion or more—quite a profit on the original investment. (For related reading, see: Piggyback the Smart Money.)
Not Just Mexico
América Movil, through various subsidiaries, isn't just in Mexico. In the U.S., the most visible brand is TracFone, a low-cost cellular phone operator. In Austria, the company owns 23% of Telekom Austria. Slim's telecom empire reaches every country in Latin America, except Venezuela and Bolivia.
Yet it wasn't necessarily a deep knowledge of technology or telecommunications that made the company what it is today. Slim has often said that his strategy is to reinvest the profits into the business itself and fuel growth. Telmex, for example, invested billions over several years to install an updated fiber network in the 1990s, and that left the company in a position offer high-speed internet service.
The pattern is typical of Slim's business deals over the course of his life – buy an asset, reinvest, and sell at a profit. Telecommunications is only the most visible piece of that strategy. (For more, see: 6 Rules From the World's Top Investors.)
Slim's strategy has been to buy up sometimes troubled companies and try to turn them around. The advantage of that model is that it doesn't necessarily require a specific knowledge of any given sector—just a keen sense of what is undervalued and what isn't. (For more, see: Value Investing: Find Undervalued Stocks.)
Also, the conglomerate structure allows him to have stakes in such a diverse range of industries that his wealth is well-prepared to maneuver global financial turbulence. His stocks might lose value in a general market downturn that affects the whole economy, but a problem in the telecommunications industry won't hurt his numbers much because some other sector will likely be doing reasonably well.
Slim is also less interested in the fine details of the businesses he buys. Any transaction is just that – the goal is to sell his stake at a profit later. Even his recent purchase of a stake in the New York Times is less about editorial policy and more about the idea that the paper can gain value as an asset, as Eduardo Garcia, editor of Sentido Común, a financial news site, told the American Journalism Review in 2009.
Carlos Slim Corners the Market
Another issue is monopolistic practices. One of the assets Slim picked up with Telmex was one of the largest Mexican makers of copper wire. He then stopped Telmex from buying wire from the company's competitor. For years, the Mexican government has fought to curb Slim’s dominance in the telecommunications sphere. However, when the Mexican government attempted to increase competition in the phone business, it didn't account for the fact that new companies had to pay Telmex an interconnection fee. Telmex simply set such fees very high, making it tougher for any other provider to undercut prices, especially for long distance calls. (Eventually, the practice stopped, after much negotiation between the government, Slim, and the upstarts). (For more, see: How Monopoly Antitrust Laws Affect Consumers.)
Even when anti-monopoly laws force Slim's companies to sell assets, there's a sense that it might just be an end-run around the law. For example, in January 2014, a Mexican court ordered Telmex to stop selling a division that holds fiber optic lines and telephone poles. The aim was to sell the division, since once the division was no longer part of Telmex, the company likely wouldn't fall under certain antitrust rules anymore, giving Slim a freer hand.
Critics have noted that with Slim's companies owning such large market shares, and driving out competitors, the Mexican economy has suffered. A lack of an even playing field means that new entrants have a tougher time mounting a challenge to an incumbent player.
Slim’s Monopoly and Its Challenges
In 2015, Slim was the second-richest man in the world according to Forbes, but 2016 has been a challenge for the Mexican tycoon. Currently he is the fourth-richest man in the world, and he was the biggest dollar loser on the 2016 Forbes Billionaires List.
The weak peso and new Mexican regulations have hurt Slim’s businesses tremendously recently. Over the years, the Mexican government has ramped up its efforts to curtail Slim’s near monopolies. In 2014, Mexican President Enrique Pena Nieto signed a new law aimed at increasing competition in the telecommunications arena.
Essentially, the new law forces Slim’s primary enterprise América Móvil to submit to special rules since it is the main competitor in the telecom field. Under the new rules, América Móvil cannot charge fees to its smaller competitors if they use the company’s network and the firm must share its infrastructure, such as its cellphone towers with its competitors
Slim says these new regulations essentially force América Móvil to subsidize its competitors, and it appears, the new regulations have already begun to affect América Móvil. América Móvil (NYSE: AMX) posted a significant profit drop in the second quarter of 2016. Profits dropped by 45% in the April-June period, compared to the previous quarter.
Currently, América Móvil holds 70% of the cellphone market and 65% of fixed lines. However, AT&T is now entering the telecom space in Mexico and says it will spend billions to compete with América Móvil. New challenges lie ahead for the telecom giant in upcoming years.
A Very Rich Man in a Very Poor Country
While Carlos Slim is one of the wealthiest men in the world, the sheer size of his wealth is compounded in contrast to Mexico’s economic development. His $50.7 billion net worth, as of 2016, stands out in astounding contrast to a nation where most Mexican workers made $12,850 in 2014, according to OECD data.
That said, Slim, through his reported billions in charitable donations, has taken steps to alleviate the poverty of his nation. He has also spoken publicly of the vital importance of alleviating poverty.
“It’s good economically. In the past, it was something ethical and moral. To take poor people out of poverty and put them in the modern economy is very good for the economy, for the country, for society and for business. It is the best investment,” Slim has said.
But others point to Slim as one of the causes of his country’s poverty, especially his monopolistic control of telecommunications in the country. Slim-owned companies control more than 80% of the landline phone calls and more than 70% of the cellular traffic in the country. (For related reading, see: AT&T and America Movil: Cooperation to Competition.)
The Economist has reported that Mexicans pay far more for phone calls—between four and ten times as much—as people in developed countries. Some estimates put the damage to the Mexican economy caused by Slim’s control of Mexican telecommunications at $25 billion a year, a number that he has publicly contested.
The Bottom Line
Mexican billionaire, Carlos Slim’s wealth is astronomical, and his reach affects virtually all economic life within Mexico. “It's hard to spend a day in Mexico and not put money in [Slim's] pocket," The Wall Street Journal once wrote. However, much like Warren Buffet who he is often compared to, Slim is known for his modest lifestyle. He has lived in the same six-bedroom home in the Lomas de Chapultepec district of Mexico City for most of his life.
The low-key mogul has ranked at the top of Forbes Billionaires list for decades; however, new challenges in the telecom arena may challenge Slim’s dominance in upcoming years.