Jim Sinegal spent his career building one of the most successful retailers in the U.S.: Costco. Founder, chairman, and former longtime CEO, Sinegal turned Costco into a $39 billion chain of stores notable for their high levels of customer loyalty.

Last month, The Motley Fool’s own founder and CEO, Tom Gardner, ventured to a Costco warehouse in Florida for an interview with Sinegal. In the clip below, Sinegal talks about the only two stocks he owns, and why he thinks Trader Joe’s is a model of how to build a retail franchise. (A transcript is provided below; running time: 2:11.)

Tom Gardner: I don’t know if you’re a stock investor, but if you are not spending time investing in other stocks, let me put you in that position and ask you, what few things would you look for if you were out there looking to make an investment? Let’s say outside of the category of retail. If you’re just looking at businesses in technology and health care and finance, what qualities or what factors would you look for to put the Sinegal Fund Inc. capital into that business?

Jim Sinegal: Well the only stocks that I own are Costco and Berkshire Hathaway, so maybe that’ll tell you something.

Gardner: Yeah.

Sinegal: I don’t invest in the stock market. I have real estate holdings, but I don’t invest in the stock market.

Gardner: But when you look at...

Sinegal: But if I were to look at it, I mean I made the obvious choice of Berkshire Hathaway because of performance and because of the caliber and the quality of the management, and the integrity that the management represents, so I think you would look for exactly those types of things. You want to know that you’re getting involved with a company that is leveling with you and telling you the full story and that their performance is just not some fly-by-night type of aberration, but that they really are a solid organization.

Gardner: So I’m going to continue to simulate hypotheticals, which can always make us uncomfortable, and if you’d like to choose to pass on any of these questions, feel free to.  Now imagine that you’re investing in a small kind of up-and-coming retailer.  What might you look for to say, "Those guys, they’re doing it right. They may only be in one region right now of the country, and they may be a small cap with only $75 million on their balance sheet, but I like what I see because I see this about them as a retailer."

Sinegal: I would look for the types of qualities that you see in a Trader Joe’s.  That you’ve got a niche, that you’ve got quality products, you’ve got a quality organization, everything about that seems to suggest quality, including the people that they hire in their stores, and so it’s pretty easy to get turned on by a business like that.

Gardner: Yeah.

Sinegal: So I think I would look for those same types of qualities.

For more of Tom's conversation with Jim Sinegal: