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- Manlobbi
Halls of Shrewd'm / US Policy❤
No. of Recommendations: 12
I was unaware of Charlie Munger's relationship with Costco until reading this excellent article. I can't imagine that he favored Costco over Berkshire or some of his other business affiliations, but then I didn't even know he was on Costco's board. It's a long, but rewarding podcast with transcript also available. I enjoyed simultaneously reading and listening. It's not really about Charlie Munger, but it is an informative primer on the retail industry and its superstar, Costco. It makes me thankful that my second largest holding after BRK is COST.
The Complete History & Strategy of Costco
Costco is not only Charlie Munger’s favorite company of all time (plus he’s on the board, natch), it’s an absolutely fascinating study in how seemingly opposite characteristics can combine to create incredible company value. For instance: Costco has the cheapest prices of any major retailer in America — and also the wealthiest customer base. They pay their hourly workers 30% above the industry norm (and give them excellent healthcare + 401k benefits) — and are almost 3x more profitable on labor than Walmart. Speaking of Walmart, Costco stocks 40x fewer SKUs than their Bentonville-based rivals — yet sells an average of 15x more volume of each. And oh yeah, practically all of Costco’s C-Suite started their careers as baggers and checkout clerks! Tune in for a mind-bending exploration of one of the world’s most iconic — and iconically unique — companies.https://www.acquired.fm/episodes/costcoTom
No. of Recommendations: 10
Acquired is my favorite business podcast, by far. The hosts do very thoughtful deep dives into successful companies and in some cases were able to do long form interviews with the founders, like Jensen Huang (NVIDIA), Morris Chang (TSMC), Mark Zuckerberg, and topical for this board, Charlie Munger. I believe it is the last interview he gave before he died. It is an hour long, and very much worth a listen.
https://www.acquired.fm/episodes/charlie-munger
No. of Recommendations: 3
No. of Recommendations: 0
It was greatly puzzled me that in spite of Charlie being on the Board of Costco and knowing the business so well, neither Daily journal nor Berkshire ever held a significant stake in Costco.
DailyJournal only held 4 stocks, 3 large banks and Alibaba. Almost 90% in BAC and WFC. For such a learned man, couldn’t he find better investments?
No. of Recommendations: 6
Has Costco ever been on sale? Everytime I've looked into it, it's looked very high. It's done fantastic but I know the day I make a major investment will be the day the correction comes. I need some margin of safety.
No. of Recommendations: 6
Has Costco ever been on sale? Everytime I've looked into it, it's looked very high. It's done fantastic but I know the day I make a major investment will be the day the correction comes. I need some margin of safety.
I hear you. My only two speculative holdings are BRK-B and COST. We lived in San Diego during the Price Club and early Costco years. One of our sons worked in the Price Club bakery in early adulthood. So we've long been fans. I'd wanted to invest in COST for many years, but it always looked overpriced to me. About 1.3 years ago I bit the bullet, as the price was relatively low compared to its recent history, albeit still quite high by value standards. Fortunately it's now up 50.9% since then, despite having dropped 4.7% from its all-time high 3 months ago – a present CAGR of 37.1%. Needless to say, I wish I'd bought more back then.
As a customer my only complaint is that whenever we visit Costco the place is jammed. As a thankful investor that’s quite reassuring. Who am I to complain about too many customers at Costco? And I’m comfortable hanging on to it, despite its exaggerated price, given its inherent integrity and long-term prospects. To my mind, COST is now a sibling of BRK.
Tom
No. of Recommendations: 36
Has Costco ever been on sale? Everytime I've looked into it, it's looked very high.
Between 2010 and 2016 it traded at an average PE of 19. From 2010 until today, the price earnings has progressively - almost year by year - expanded and is now trading at a PE approaching 60. Not quite as crazy as the euphoric valuations in the late 90s, given Costco’s earnings durability —- for a firm anticipated to grow earnings at 18% for many years into the future, such a multiple makes sense, and for one growing earnings at 9%, this multiple is simply euphoric.
It may be steadfast but the IV10/price ratio is very uncompetitive with other opportunities.
In observing Costco’s great capital gains over this period, more of the gain is attributable to the valuation increase rather than the actual increase in earnings per share.
Sales per share (or EPS with margin normalized) has grown 9% a year the last decade, and a little higher on trend lately as part of that same average. This deserves a multiple higher than 15, but not 4 times higher.
The multiple will come down at some point, so future capital gains will struggle to keep up with the rate of increase in the EPS, thus likely much less than 9% per year over the next decade.
- Manlobbi
No. of Recommendations: 4
It may be steadfast but the IV10/price ratio is very uncompetitive with other opportunities.
Thanks for your thoughtful comments, Manlobbi. It's always best to stay grounded in reality.
I wonder whether Costco's irrationally high stock price might partially reflect the extraordinary appreciation of its relatively wealthy customer base.
Tom
No. of Recommendations: 1
Back in 1993-1996 Carrefour (the French retailer) had 11% ownership of Costco and 20% ownership of Costco UK. They wanted to move out of their US holdings and put the 11% Costco stake up for sale in 1994-1995.
At the time, Munger had not yet joined the Costco board (1997) but was likely aware of the sale of that 11% stake.
At the annual meetings, wasn't it a constant theme of how Charlie had tried to talk Warren into buying a stake in Costco?
No. of Recommendations: 2
11% of Costco today would be more than $50B
No. of Recommendations: 2
At the annual meetings, wasn't it a constant theme of how Charlie had tried to talk Warren into buying a stake in Costco?
My question is why didn’t Charlie buy Costco for the Daily Journal portfolio he was investing? Or for his own portfolio before or during his tenure on Costco board?
No. of Recommendations: 14
Watching big, mature, widely followed companies like COST go from a PE of 19 to a PE of 60, makes me chuckle when I hear people screaming on this board that we should all sell overvalued BRK and head to the hills because the price to BV went from 1.5 to 1.75 which in the scheme of many stock price runs is nothing but a trivial blip, in my opinion.
