Hubert Joly is investing $80 million to take on Walmart and Amazon. Here’s how he plans to do it.

Best Buy Co. Inc. got itself a “real contender” in U.S. electronics retailering with the appointment of Hubert Joly as CEO.

Joly was the solution to a billionaire investor, who joined forces with Zappos.com Inc. founder Tony Hsieh to take down Best Buy’s overvalued stock. Why is this relevant? Because it’s a tale of Hsieh rescuing a dying economy, which could be the better part of an $80 million investment.

Going by Best Buy’s recent results, investors agree. The stock is up about 150 percent since Joly took the helm last August. Best Buy has nearly $800 million in free cash flow today. During the first three months of this year, it sent a record-breaking $3.2 billion in cash to shareholders through stock buybacks and dividends.

In an interview with Bloomberg Businessweek, Joly said he’s focused on “allocating capital wisely.” That brings us to the first part of the job description, restoring balance to a market capitalization overvalued by $11 billion. During his tenure at Vivendi Games, the maker of The Game of Thrones, Joly focused on monetizing assets like downloadable content and improving the developer experience. He then moved to South Korea, where he could use the same strategy.

“First and foremost, I think capital allocation is about making sure the resources that are on your books have a purpose,” he said. “The purpose of capital allocation is creating value for shareholders, not getting a high return on capital. This needs to be balanced by making sure the business needs to have at least an equal balance of earnings power and cash. For the long term it’s about creating a competitive edge for the corporation.”

Restoring balance requires that board members that are paid $10 million a year avoid investing in money losers. It’s not rocket science, Joly says, “but people always have different perspectives.”

If Joly is successful, it could have a cascading effect on corporate America, where investors are constantly buying and selling stocks based on short-term data. Best Buy investors are bullish, Joly investors are bearish. That pits “favorable” and “unfavorable” investors against each other, based on what’s happening and what’s expected to happen in the future.

The CEO then speaks of the “long game,” and focuses on the long game. This is why Hsieh is such a wild card in the mix. He invested heavily in properties he thought would be profitable long term, even if they were undervalued now. Zappos was worth $1.2 billion, but a $1.5 billion valuation based on what Hsieh was betting on the future. When Zappos got sold to Amazon.com for $9 billion, Joly made a $60 million payout.

Since changing the culture in Vivendi’s home market of France, the company had also managed to clear out 3,000 jobs. Best Buy has vowed to keep its same policy.

“It’s not an easy thing to understand. The main thing is to be transparent and to have very clear goals,” Joly said. “What the right goal is and what can you do in today’s market. As you achieve these goals, the headcount goes down, and you give a ‘For Sale’ sign. You get rid of the bureaucracy, the non-performing assets that don’t belong to the good. You put focus on doing what a true sustainable enterprise has to do. And the headcount of your company goes down. This has been very successful in France and Vivendi has managed to redeploy the cash and carry forward. This is the basic approach that needs to be executed in the United States. It’s not a different kind of model but a relook at the basics of capitalism.”

As for a stock market correction?

“Nobody knows the bottom line but we’ve seen that in corrections and in short term crashes, the vast majority of companies they come back. I don’t know when the cycle will start, it may even turn now,” Joly said. “We’d like to see a bull market this year, which I hope will be robust. I think it will be this year. Even in a poor cycle, there are a lot of opportunities. This year is still interesting and even in the worst cycle, we can still do a lot. I am even more optimistic now.”

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