COST - Costco

[coc]

Charlie Munger purchased around $300, before covid driven ecomm tailwinds.  Just something to think about

 

Can you point us to where Charlie made open market purchases of COST around $300? Thanks.

[ValueMaven]

When it comes to special companies like COST, valuation DOES NOT MATTER! I was long in the camp of "bbbbbbut the valuation". In March I threw in the towel and decided to just buy a position around 290 and appreciate it for what it is; a great company. The people who have worried about Costco's valuation, have consistently missed out on the opportunity to own it...much to their dismay.

 

Well said Gregmal.  I always appreciate your insights.

[learner]

Charlie Munger purchased around $300, before covid driven ecomm tailwinds.  Just something to think about

 

Can you point us to where Charlie made open market purchases of COST around $300? Thanks.

 

https://news.yahoo.com/charlie-munger-buys-more-costco-155946219.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAABSqO7FQdLIo-Grx808riiCu3AjV7LDKyhiEFxa_o4Gtxh94xQsIAlY8KxkIPYUSbKA6_idQgrfXqyK8S31qUV5ml6Z_bQ1PDKsujcJ9df6imPCM5c8VmA65imkDSBVS13xmJOouKWxhzj7NXb_p7V18gsLQ5tEVprKZFi5VP0hy

 

[coc]

Charlie Munger purchased around $300, before covid driven ecomm tailwinds.  Just something to think about

 

Can you point us to where Charlie made open market purchases of COST around $300? Thanks.

 

https://news.yahoo.com/charlie-munger-buys-more-costco-155946219.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAABSqO7FQdLIo-Grx808riiCu3AjV7LDKyhiEFxa_o4Gtxh94xQsIAlY8KxkIPYUSbKA6_idQgrfXqyK8S31qUV5ml6Z_bQ1PDKsujcJ9df6imPCM5c8VmA65imkDSBVS13xmJOouKWxhzj7NXb_p7V18gsLQ5tEVprKZFi5VP0hy

 

Unfortunately that’s lazy reporting by Gurufocus. Charlie hasn’t bought any on the open market in a long, long time. Those are restricted stock grants due to his directorship.

[Spekulatius]

When it comes to special companies like COST, valuation DOES NOT MATTER! I was long in the camp of "bbbbbbut the valuation". In March I threw in the towel and decided to just buy a position around 290 and appreciate it for what it is; a great company. The people who have worried about Costco's valuation, have consistently missed out on the opportunity to own it...much to their dismay.

 

Valuation always matters no matter what you buy. Investing is about getting more than you pay for. MSFT and CSCO and many other companies were great business in 2000, but their multiples  were unsustainable. MSFT was trading at 70+ PE‘ and went to < 10x PE‘s 10 years later. Their fundamentals weren’t  even bad 10 years later, although the narrative followed the stock price down of course. Mr Market had been very generous with multiple expansion for some business lately and of course there is a narrative to go along with it. We will find out if this time is different.

[Gregmal]

When it comes to special companies like COST, valuation DOES NOT MATTER! I was long in the camp of "bbbbbbut the valuation". In March I threw in the towel and decided to just buy a position around 290 and appreciate it for what it is; a great company. The people who have worried about Costco's valuation, have consistently missed out on the opportunity to own it...much to their dismay.

 

Valuation always matters no matter what you buy. Investing is about getting more than you pay for. MSFT and CSCO and many other companies were great business in 2000, but their multiples  were unsustainable. MSFT was trading at 70+ PE‘ and went to < 10x PE‘s 10 years later. Their fundamentals weren’t  even bad 10 years later, although the narrative followed the stock price down of course. Mr Market had been very generous with multiple expansion for some business lately and of course there is a narrative to go along with it. We will find out if this time is different.

 

If you use the most extreme scenarios to make a point one will always find a way to be deterred, but even here, its kind of startling how much had to go wrong or be done poorly in order to not do "ok", and even still, the case is weak.

 

In the worst case scenario you bought everything you were capable of allocating at MSFT's dot.com peak and at CSCO's; whatever. You never buy another share(for whatever reason) and to be simple lets say Joe Schmuck put $10k in each. 20 years later MSFT has quadrupled and CSCO is down about 50% with neither reflecting any dividends paid....surely over the course of the past 20 years, theres a whole lot worse things that could've and have happened to folks. The $20k total is $45k...without accounting for a whole lot of dividends...

 

Now...imagine you didnt buy at the one point in the past 3 decades where it might have been poor timing or averaged in over time and allocated capital somewhat sensibly?

 

One of my favorite aphorisms about investing is that more money has been lost preparing for the crash than has been lost in crashes. Along with this I would add that more money has been forfeited by people being picky about valuations when the investment case otherwise, is obvious. If you think about it, the idea of missing 100s or even 1000's of percentage gains over the long haul because you were a cheapskate and were waiting for a 5-10% discount...is pretty stupid.

 

I have an investor who was reminiscing about how he could've bought, and was very close to buying, BRK.A shares for $1,200 each in the early 80s but just couldn't bring himself to do it because earlier in the year it was in the $600s or something like that....

 

 

So if you stick with quality companies....valuation really doesnt matter over the long haul. Markets are always adjusted and quality will always be acknowledged. The examples above, assumes everything that can go wrong does go wrong, capital is allocated as stupidly as possible, as you still have $45k plus dividends from an initial $20K investment two decades ago. Thats not really a boogeyman I'd recommend being scared of.

[coc]

When it comes to special companies like COST, valuation DOES NOT MATTER! I was long in the camp of "bbbbbbut the valuation". In March I threw in the towel and decided to just buy a position around 290 and appreciate it for what it is; a great company. The people who have worried about Costco's valuation, have consistently missed out on the opportunity to own it...much to their dismay.

 

Valuation always matters no matter what you buy. Investing is about getting more than you pay for. MSFT and CSCO and many other companies were great business in 2000, but their multiples  were unsustainable. MSFT was trading at 70+ PE‘ and went to < 10x PE‘s 10 years later. Their fundamentals weren’t  even bad 10 years later, although the narrative followed the stock price down of course. Mr Market had been very generous with multiple expansion for some business lately and of course there is a narrative to go along with it. We will find out if this time is different.

 

Agreed. With regards to COST specifically, it’s reasonable to expect they can continue to deliver roughly 10% per year in growth and dividends, for some time. But if the valuation compresses even to 20x over the next ten or twenty years as growth slows due to size, your return won’t be greater than 7-8%. I don’t see how investors buying in today plan to escape that math. Or perhaps they are comfortable with it, which I can understand.

 

BRK is a great example of this. If you bought in while they were still growing at 15-20% and the valuation was less than 2x book, you’ve done incredible - up until the late 90s. But if you bought in even 20 years ago, you’ve got a single digit return. I won’t scoff at that, but I doubt if many here would be thrilled with it.

[ValueMaven]

When it comes to special companies like COST, valuation DOES NOT MATTER! I was long in the camp of "bbbbbbut the valuation". In March I threw in the towel and decided to just buy a position around 290 and appreciate it for what it is; a great company. The people who have worried about Costco's valuation, have consistently missed out on the opportunity to own it...much to their dismay.

 

Valuation always matters no matter what you buy. Investing is about getting more than you pay for. MSFT and CSCO and many other companies were great business in 2000, but their multiples  were unsustainable. MSFT was trading at 70+ PE‘ and went to < 10x PE‘s 10 years later. Their fundamentals weren’t  even bad 10 years later, although the narrative followed the stock price down of course. Mr Market had been very generous with multiple expansion for some business lately and of course there is a narrative to go along with it. We will find out if this time is different.

 

 

Very well said as always Spekulatius.  Always appreciate your perspective!

[ValueMaven]

the real question in my view is the following:

 

1) What does international expansion look like, and how successful can they be? 

2) How does COST's e-commerce business develop over the next 3-5 years

 

 

[Spekulatius]

the real question in my view is the following:

 

1) What does international expansion look like, and how successful can they be? 

2) How does COST's e-commerce business develop over the next 3-5 years

 

I think e-commerce is a much stronger opportunity than international expansion. International is tricky because every country has its own idiosyncrasies and what works in the US may not work in another country. Europe for example has already it‘s own Costco, it’s Metro and they haven’t done well. They used to do well into the 80‘s, but lately, the concept hasn’t resonated and perhaps Metro got into too many adjacent business and didn’t execute. I don’t really have an idea.

 

I do think e-Commerce is an  big opportunity and over time, it might become as big than their warehouse business, but issues are:

 

1) The don’t seem to focus on e-commerce and maybe don’t have the right talent in place to grow this business. For example, their Costco app is rated  2.5* in the App Store and it the lowest rated retailers app I can find.

 

2) As a customer, their Website isn’t really streamlined, shipping is slow and sometimes free and sometimes it isn’t. We mostly used it for OTC drugs (where Costco is hard to beat in pricing). It is also unclear, if Costco‘s moat with it’s warehouses translates in a moat with their e-commerce business.

[bizaro86]

From a consumer point of view, the best things to buy at Costco are items with high margins elsewhere. Costco has similar margins throughout its business (as a policy) which means items that retailers normally mark up a lot are a relatively better deal.

 

Examples include flowers, OTC meds, steaks, and appliances/renovation items.

 

Stuff that is very competitive with low margins elsewhere (soda, milk) they tend to be competitive but not way better on pricing.

 

I think at their current multiple you have to believe in some international expansion being successful. They have launched in a number of new countries,so, so they have a few chances to make it work well. Probably need either China or a few other countries to work for this to work out. I thi k the fact that Taiwan has been a big success is potentially indicative about their potential in Asia.

 

[Gregmal]

At least from my observations, there is an inherent flaw involved in assuming certain types(again, high quality, big moat) of businesses are "priced for perfection" and need to "execute superbly" in order to "grow into" their valuation. The past decade+ we've heard that about....Amazon, Tesla, Intuitive Surgical, and yes, Costco, just to name a few...and at the end of the day the real returns have far exceeded the "if they do this its possible to get a 7-10% IRR but its more likely than not that investors will be disappointed" projections. Which in many cases, we've been hearing forever now.

 

Great businesses generally do execute superbly. They capitalize on market opportunities, and they kind of run themselves to a certain degree. Thats the advantage to buying companies like this. Ive literally been hearing for a decade+ that Costco is "expensive"...If something is "always expensive" than more likely than not, IMO, its not really expensive, thats just the price you have to pay for it. Otherwise you will never own it. The stock market, to a degree, gives an investor a big advantage. You can go try to buy the highest quality private business in your neighborhood. If you pay $100M for $250k in earnings, it is very likely you will do poorly because you have no exit but to a greater fool and the cash flow is poor. But in the public markets, over the long haul, there market seems pretty efficient and when you have a multi billion dollar company doing hundreds of millions in ADV over a multi year period, with many ultra educated and sophisticated investors participating in the market, I find it hard to rationalize the claim that you're just buying hot air.

 

I also think even 5%-7% annually is hardly anything to scoff at...Bonds offer nothing, Treasuries are a waste, and the other alternatives are slim. Probably a reasonable separate topic but I find it bizarre how despite record cheap money sloshing around, everyone thinks everything out there is either expensive, or investable. Stock, Bonds, commodities, real estate, currencies....Everyone has more cash than they no what to do with but no one wants to buy anything?

 

In lockstep with the MSFT example, a lot fo times even the best companies do tend to trade with a big anchor to the indexes. I mean for the 20 year stretch MSFT didnt do much(only 4x), but what did the SPY do? Even less...The best in breed companies are basically just more insulated ways to capture returns without the risk if you are able to avoid secular declines and bad management.

 

 

[widenthemoat]

At least from my observations, there is an inherent flaw involved in assuming certain types(again, high quality, big moat) of businesses are "priced for perfection" and need to "execute superbly" in order to "grow into" their valuation. The past decade+ we've heard that about....Amazon, Tesla, Intuitive Surgical, and yes, Costco, just to name a few...and at the end of the day the real returns have far exceeded the "if they do this its possible to get a 7-10% IRR but its more likely than not that investors will be disappointed" projections. Which in many cases, we've been hearing forever now.

 

Great businesses generally do execute superbly. They capitalize on market opportunities, and they kind of run themselves to a certain degree. Thats the advantage to buying companies like this. Ive literally been hearing for a decade+ that Costco is "expensive"...If something is "always expensive" than more likely than not, IMO, its not really expensive, thats just the price you have to pay for it. Otherwise you will never own it. The stock market, to a degree, gives an investor a big advantage. You can go try to buy the highest quality private business in your neighborhood. If you pay $100M for $250k in earnings, it is very likely you will do poorly because you have no exit but to a greater fool and the cash flow is poor. But in the public markets, over the long haul, there market seems pretty efficient and when you have a multi billion dollar company doing hundreds of millions in ADV over a multi year period, with many ultra educated and sophisticated investors participating in the market, I find it hard to rationalize the claim that you're just buying hot air.

 

I also think even 5%-7% annually is hardly anything to scoff at...Bonds offer nothing, Treasuries are a waste, and the other alternatives are slim. Probably a reasonable separate topic but I find it bizarre how despite record cheap money sloshing around, everyone thinks everything out there is either expensive, or investable. Stock, Bonds, commodities, real estate, currencies....Everyone has more cash than they no what to do with but no one wants to buy anything?

 

In lockstep with the MSFT example, a lot fo times even the best companies do tend to trade with a big anchor to the indexes. I mean for the 20 year stretch MSFT didnt do much(only 4x), but what did the SPY do? Even less...The best in breed companies are basically just more insulated ways to capture returns without the risk if you are able to avoid secular declines and bad management.

 

In my opinion, you're better off just forgetting about the market entirely. How much would you be willing to pay for Costco if you could never sell it for the rest of your life, and only get your return from dividends? If the dividends aren't paid, Costco better be able to pay you a higher dividend next year and the year after that. Eventually they will start paying dividends if it is a well managed company - maybe this is 100 years from now, but eventually they will run out of intelligent uses of capital and you will get paid. When you think about it this way, you don't need to compare your return to the broader market, and your "return" is not calculated by looking at the stock price in Year X vs. Year X+5. The more important question is how much did you pay for the stock, how much has it paid you in dividends thus far, and how much will it pay you from now until the end of time (and when). Having the ability to sell the stock is a luxury the market provides when people get silly, it shouldn't be your focus - and if your return is reliant on a sale, it's not an investment.

 

Touching on your 5% to 7% return as nothing to scoff at, I think it makes no sense at all to compare earnings yields to what bonds offer. I know this is what WEB talks about in interviews all the time, but he doesn't act that way. His minimum threshold is probably closer to 10% now, but this was without a doubt much higher when he was managing a smaller amount of capital. Take a look at the quotes below.

 

If you attempt to assess intrinsic value, it all relates to cash flow. The only reason to put cash into any kind of investment now is that you expect to take cash out--not by selling it to somebody else, that's just a game of who beats who--but by the asset itself ... If you're an investor, you're looking on what the asset is going to do, if you're a speculator, you're commonly focusing on what the price of the object is going to do, and that's not our game. We feel that if we're right about the business, we're going to make a lot of money, and if we're wrong about the business, we don't have any hopes of making money.

 

Source: BRK Annual Meeting 1997

 

Just because interest rates are at 1.5% doesn't mean we like an investment that yields 2-3%. We have minimum thresholds in our mind that are a whole lot higher than government rates. When we're looking at a business, we're looking at holding it forever, so we don't assume rates will always be this low.

 

BRK Annual Meeting 2003

 

In other words, would you be willing to accept a company that is priced at a 5% earnings yield that is 100% distributed, and not get your money back for 20 years if earnings stayed constant (a big risk)? Your real return would be 3% after inflation (assuming 2%) - this doesn't sound like a great return to me. These low rates are just crazy in my opinion. Unless humans start living for 300 years, no-one would lend out at 1% for 100 years if they didn't plan on eventually selling the bond to somebody else. It just makes no sense - you're better of losing 2% purchasing power each year but keeping optionality that rates eventually normalize.

 

People get tricked into thinking: "well if the yields stay low and earnings grow at 25% I can sell at the same multiple and get my 25% return." That is so clearly speculating on pieces of paper to me, I just don't understand how more people can't see that. Warren talks about how value investing is like an inoculation, and I completely agree, sometimes I feel like a crazy person talking about this stuff. Focus instead on what the business will pay you over time and not what you can sell it for.

 

This is not a pitch that Costco is overvalued. I just want some hard numbers that show me how I get a 10% return from here based on dividend I will receive and when I will receive them.

 

Sorry for the rant, this speculative mania is just starting to annoy me and I had to put my thoughts out there for the record.

[Spekulatius]

5-7% return is realistic. I also want to point out that my post was in no way directed towards COST stock, but only to the absolute statement they valuation doesn’t matter. I see this more and more as a recent narrative and when you think about it, it just can’t be correct in an absolute sense.

 

But since we are at COST, I took a look at the really long term valuation metrics, like EV/Revenue, Costco is interesting because their business model essentially is the same and moot of their metrics pretty much staid the same too over time (Gross margins etc.) . Business wise, it’s pretty much the same company it was 20 years ago. So here we are in terms of EV/Revenue ((EV/ EBIT would look very similar):

 

So basically over time, you COST has seen a 2.5x valuation multiple expansion with exactly the same business model.  Now, if you unwind this (as a mental exercise) and think that this could reverse and Costco could go back to. 0.44 revenue multiple (which is well above lows)  in a decade, than this would be roughly a 7% headwind a year. Eyeballing the numbers that’s essentially COST revenue growth rates over the long run. This means that fundamentally, you could end up with the same share price in 10 years assuming all the fundamentals ands growth stay exactly as they are just by means of multiple compression to a 2006 level (which was hardly a stick market bottom). It’s not quite as bad as MSFT did in 2001, but not great either.

[coc]

I don't get why anyone needs to use alternative valuation metrics, EV to this and that etc etc. The math is fingers and toes.

 

1: At what rate will COST grow and for how long?

2: What % of earnings are required to create that growth?

3: What will the valuation relative to earnings be when I sell?

 

I say 1 is about 7%/year for a good while - could be 10+ years. I say 2 is probably 25-30%. That leaves 70-75% distributable earnings. 3 is unknowable, but we can probably come up with a range (say 18x-30x earnings in 10-20 years). We know COST is not going to have much bigger margins ever because their whole model is to keep their margins the same and pass on savings.

 

This means that at today's price, you're getting about a 2% free cash flow yield, growing around 7%, assuming COST trades at the same 35x earnings when you sell it. If you sell it at 25x earnings in 10 years, you'll make 3.5% + 2% = 5.5%/ year. If you sell it at 18x earnings, you'll make 0% + 2% = 2%/year. Think through what the proper multiple will be in 10 years and you have your math. There's just no magic to this.

 

COST has done well in the last decade because they've grown at 7-8%/year, paid out good dividends, and the valuation has gone from high teens into the mid-30s. I sort of doubt it goes from the mid-30's to the mid'60s over the next 10.

[Gregmal]

Theres a couple things that I believe are important.

 

1) If saying "valuations dont matter" to a random investor, yea, thats dangerous and irresponsible. When saying it to a network of sophisticated(assumed, at least) investors, it should be understood that there are caveats, and ****'s, and that its largely case specific. Anyone who has focused on valuation, as their primary determinant of investing in Costco has missed out. Same for Amazon. Same for a number of companies. Everyone always says "I doubt they can keep growing at this rate", or "I doubt they'll get multiple expansion from here"...and yet, here we are. So its important to learn from past mistakes at some point.

 

2) Investing requires a flexible mindset. Sure, valuation always matter, except when they dont. Short term fluctuations dont matter, except when they do. Short term voting machine, long term weighing machine, except when for a 5, 10, 15 year stretch the assumed voting machine turns out to be the weighing machine. I recall maybe a year or two ago on this forum, there was spirited debate and unanimous conclusion that it is always wise to avoid spacs, except as we've been seeing the past 12 months or so, sometimes there are worthwhile opportunities. Staying flexible and resisting the urge to adhere to dogma and fixed principles is necessary.

 

3) If I had to wager, I'd imagine the aggregate total, assuming one invested equal amounts, of a presumed investment into every company an investor has passed on because of "valuation", would yield a positive return. Your perception doesnt not equal the outcome. History has shown us that simply being in the market, even without a brain, pays off.

 

4) Not all things are valued the same way. I do think it's fair to look at cash flow from a retailer. But while Costco's business is largely the same as 15 years ago....it is far more established and dominant and that deserves a better multiple and more weight. Why would any company be valued in the same basis it was as a much less mature and dominant market player?

 

5) Cash flow does not always matter. Its the same reason some people arent capable of understanding investments in things like sports teams/assets. The Mets are a habitual money loser, and NTM should lose $150M. $2.4B it is! I won't even get into stuff like Bitcoin, although its the same story there. Interesting enough often from people who invest in gold, which doesnt have a cash flow either. There are different and varying aspects of an investment that determine it's collective valuation. Its short sighted to just look at one.

 

6) You dont need to be married to an investment. Sure, I prefer and think buying and putting it away is the best approach for most companies and core investments. But if one needs a short, to mid duration alternative to cash, again, these type of companies fit the bill. Sitting on cash waiting for a 10% rate of return or whatever is greatly diminished with any inflation. But even more so when you incorporate what? You wait 5 years to get "your perceived" target valuation? Well once you factor into the 5 years of -2% you are already pretty significantly diluted.

 

7) Waiting for your perceived rate hurdle is fine, but also often unintentionally arrogant and setting one self up to be behind the ball. If Costco even gets to a valuation that is inconsistent with where it has historically been, what causes it? A short term trading glitch? Most people are too scared to pull the trigger when that happens. And if its not a short term technical glitch, do people really think you get to those targets without materially negative fundamental developments? I had an employee once make a remark about how "wouldn't it be great if (insert company name, I forget exactly who it was) traded down to $25 per share?(from like $100). I would load the boat"...and my response was basically...you probably wouldn't want to touch it because for that to happen you'd need substantial materially adverse developments which no longer make it attractive like it is today. You arent getting todays Costco at a substantial discount unless it isn't todays Costco. Which then, leads to...

 

8 ) When people get the discounts, they still always find excuses and reasons to scare themselves out of investing. I had a number of investors in March or April who couldn't be helped because of infatuations with "what if this" or "what if that"...and at some point if you wait around forever for a pullback, but the pullback level is still higher than when you first started "waiting" you've wasted your time. Or if the pullback does come, but you convince yourself not to act, well same thing. I couldn't help but respond to a small couple investors doing this, that "I'm sorry but I dont really have the time to address every one of your hypothetical concerns. If you dont want to invest, there's nothing I can do to help you"...and thats all there is too it. Too often people treat investing their dollars like a teenage girls treats losing virginity. Then you get used to it and realize its not a big deal and if you do it responsibly, you will be fine. The market can and does change, plan for it and be prepared, but dont let that distract you from acting today. I mean, if you are super worried about the valuation, but otherwise really want to own Costco, or Amazon, or whatever....just buy a damn put lol.

 

[LC]

So basically over time, you COST has seen a 2.5x valuation multiple expansion with exactly the same business model.

Not coincidentally, the decrease in the 30-year rate over the past 10 years has been 264%

 

Point is that a good chunk of the valuation change has been a market phenomenon, not attributable to an improvement in Costco's business.

[wabuffo]

Not coincidentally, the decrease in the 30-year rate over the past 10 years has been 264%

 

Also have to factor in the cut in the Federal Corporate Tax rate since 2018.  The multiple on that same stream of $1 of pre-tax earnings from the mid-2000s has to be higher if discounted to the present today than back then.  Its just math.

 

wabuffo

 

[SlowAppreciation]

 

So basically over time, you COST has seen a 2.5x valuation multiple expansion with exactly the same business model.  Now, if you unwind this (as a mental exercise) and think that this could reverse and Costco could go back to. 0.44 revenue multiple (which is well above lows)  in a decade, than this would be roughly a 7% headwind a year. Eyeballing the numbers that’s essentially COST revenue growth rates over the long run. This means that fundamentally, you could end up with the same share price in 10 years assuming all the fundamentals ands growth stay exactly as they are just by means of multiple compression to a 2006 level (which was hardly a stick market bottom). It’s not quite as bad as MSFT did in 2001, but not great either.

 

Well ROE has doubled too...

 

 

 

[thowed]

Theres a couple things that I believe are important.

 

1) If saying "valuations dont matter" to a random investor, yea, thats dangerous and irresponsible. When saying it to a network of sophisticated(assumed, at least) investors, it should be understood that there are caveats, and ****'s, and that its largely case specific. Anyone who has focused on valuation, as their primary determinant of investing in Costco has missed out. Same for Amazon. Same for a number of companies. Everyone always says "I doubt they can keep growing at this rate", or "I doubt they'll get multiple expansion from here"...and yet, here we are. So its important to learn from past mistakes at some point.

 

2) Investing requires a flexible mindset. Sure, valuation always matter, except when they dont. Short term fluctuations dont matter, except when they do. Short term voting machine, long term weighing machine, except when for a 5, 10, 15 year stretch the assumed voting machine turns out to be the weighing machine. I recall maybe a year or two ago on this forum, there was spirited debate and unanimous conclusion that it is always wise to avoid spacs, except as we've been seeing the past 12 months or so, sometimes there are worthwhile opportunities. Staying flexible and resisting the urge to adhere to dogma and fixed principles is necessary.

 

3) If I had to wager, I'd imagine the aggregate total, assuming one invested equal amounts, of a presumed investment into every company an investor has passed on because of "valuation", would yield a positive return. Your perception doesnt not equal the outcome. History has shown us that simply being in the market, even without a brain, pays off.

 

4) Not all things are valued the same way. I do think it's fair to look at cash flow from a retailer. But while Costco's business is largely the same as 15 years ago....it is far more established and dominant and that deserves a better multiple and more weight. Why would any company be valued in the same basis it was as a much less mature and dominant market player?

 

5) Cash flow does not always matter. Its the same reason some people arent capable of understanding investments in things like sports teams/assets. The Mets are a habitual money loser, and NTM should lose $150M. $2.4B it is! I won't even get into stuff like Bitcoin, although its the same story there. Interesting enough often from people who invest in gold, which doesnt have a cash flow either. There are different and varying aspects of an investment that determine it's collective valuation. Its short sighted to just look at one.

 

6) You dont need to be married to an investment. Sure, I prefer and think buying and putting it away is the best approach for most companies and core investments. But if one needs a short, to mid duration alternative to cash, again, these type of companies fit the bill. Sitting on cash waiting for a 10% rate of return or whatever is greatly diminished with any inflation. But even more so when you incorporate what? You wait 5 years to get "your perceived" target valuation? Well once you factor into the 5 years of -2% you are already pretty significantly diluted.

 

7) Waiting for your perceived rate hurdle is fine, but also often unintentionally arrogant and setting one self up to be behind the ball. If Costco even gets to a valuation that is inconsistent with where it has historically been, what causes it? A short term trading glitch? Most people are too scared to pull the trigger when that happens. And if its not a short term technical glitch, do people really think you get to those targets without materially negative fundamental developments? I had an employee once make a remark about how "wouldn't it be great if (insert company name, I forget exactly who it was) traded down to $25 per share?(from like $100). I would load the boat"...and my response was basically...you probably wouldn't want to touch it because for that to happen you'd need substantial materially adverse developments which no longer make it attractive like it is today. You arent getting todays Costco at a substantial discount unless it isn't todays Costco. Which then, leads to...

 

8 ) When people get the discounts, they still always find excuses and reasons to scare themselves out of investing. I had a number of investors in March or April who couldn't be helped because of infatuations with "what if this" or "what if that"...and at some point if you wait around forever for a pullback, but the pullback level is still higher than when you first started "waiting" you've wasted your time. Or if the pullback does come, but you convince yourself not to act, well same thing. I couldn't help but respond to a small couple investors doing this, that "I'm sorry but I dont really have the time to address every one of your hypothetical concerns. If you dont want to invest, there's nothing I can do to help you"...and thats all there is too it. Too often people treat investing their dollars like a teenage girls treats losing virginity. Then you get used to it and realize its not a big deal and if you do it responsibly, you will be fine. The market can and does change, plan for it and be prepared, but dont let that distract you from acting today. I mean, if you are super worried about the valuation, but otherwise really want to own Costco, or Amazon, or whatever....just buy a damn put lol.

 

Posts like this are why I keep reading this forum.  Thanks for the wisdom.  I am definitely guilty of some of this, but working on changing!

 

 

[Gregmal]

Another $20 per share in multiple expansion the past week...(kidding, but making a point)

[ValueMaven]

Ya - nearly 40x P/E on a bulk discount retailer.  I get that they are best in class and going to pay out another special divy soon.  Unless this corrects back to below $250 - ill study and watch this from afar. 

[AzCactus]

Just wondering if this is looking interesting to anyone at these prices.  Clearly Costco is expensive but its also down somewhat from recent highs, is incredibly well run and seems to have a nice moat around it. 

[RadMan24]

Just wondering if this is looking interesting to anyone at these prices.  Clearly Costco is expensive but its also down somewhat from recent highs, is incredibly well run and seems to have a nice moat around it.

 

Without being captain obvious, Costco has a lot of room to grow and build its moat, especially overseas. But if the multiple contracts from here, even if 10 years out, whatever EPS growth will likely be offset. Some might argue at this price level, you got a Coca-Cola type situation.

 

 

 

 

[peridotcapital]

The growth potential is so big compared with Coke (which has not grown EPS in forever). They have 700 warehouses in North America and just 100 on the other continents combined. The reception to their first China location was insane. The stock has always traded above a market multiple, and understandably so. I suspect the long-term growth will easily offset any modest (5-10 points) of multiple compression over time. Along with AMZN, I think COST is starting to give investors a great entry point, as the "reopening" trade continues and stocks like these sell off in the near term. They were great growth companies before the pandemic and will be afterward as well.

 

FD: Started averaging into both in recent days and hope to continue on further weakness.