“Whenever I am having a bad day I think about Costco.”
– Charlie Munger
Written by Bryan Lutz, Editor at Dollarcollapse.com:
In Saturday’s dollarcollapse email, I highlighted retailers like Bed, Bath and Beyond because of their addiction to easy money, fast debt, and willingness to ignore market signals.
Unfortunately, they are now Bed, Bath and Beyond Bankrupt...
Then there’s what separates a profitable retailer from the great beyond: they know what their market wants.
They track with their market so effectively they know exactly what and when to buy.
That’s Costco for you.
They are a perfect example of a corporate entrepreneurship.
They read the market.
They buy products they know people want.
And then, they make money.
Here’s an example:
Back in September this year, Founder of dollarcollapse.com, John Rubino asked, “Did Gold Bars Just Become An Impulse Buy?“
In Q3 this year, they sold 1oz gold bars online.
“Gold sales would be a lot higher if it was an impulse buy, the kind of thing you can see, think “Hey, I want that,” and just take it home
Well, that day may have just arrived, with (no real surprise) Costco leading the way.”
Now that the numbers are in…
Costco does seem to be leading the way.
On Dec. 15, The Guardian reported on Costco’s revenue income from gold bars:
Costco sells $100m in gold bars in most recent quarter
“…Costco’s latest such offering – gold bars – has proved a hit, with $100m worth sold in the most recent quarter…
Each new release of gold bars usually sells out “within a few hours”, AP reported the Costco CFO, Richard Galanti, saying in a September company earnings call.”
I think it’s worth speculating what made them choose.
Among all the products Costco could have chose, what made them decide to purchase about $100M worth of gold bars and then put them online?
After all, gold sales are exceptionally difficult to ship, store and sell. Gold is heavy, requires high security costs along with meeting regulatory standards. And then the margins aren’t as great as you’d think they’d be. Maybe 5% or so.
As a retailer, unless your business is entirely focused on selling precious metals, the risk is quite high.
The way business goes, Costco’s buyers and executives would’ve made the decision months before and then executed online sales of gold bars in Q3.
And they would’ve needed to place orders while market volatility was overall, on the decline.
If you look at the VIX Index, the market’s fear gauge, it was at lower and similar to pre-pandemic levels.
And as we get the news of $100M in gold bar sales, the VIX Index is still sitting steady at low levels.
What happened was Costco wasn’t tracking market indexes like the VIX, or the Federal Fund Rate(FFR), or even timing the price of gold with past recessions.
They were doing what successful businesses do.
They were tracking sales, but not what you’d think.
Yahoo! reports:
Costco Execs Warn of Looming Recession Because of One Change Shoppers Are Making to Their Buying Habits
“…Costco Chief Financial Officer Richard Galanti said he’s seen some customers switching from purchases of beef products to less expensive choices, like pork and chicken. He said he’s also seen this trend historically as the U.S. entered a recession in the past.
He added that some customers are purchasing canned meat and fish products, which cost less and also have a longer shelf life. In a situation of hyperinflation — or in the case of job loss sparked by a recession — consumers who stock up on non-perishable items will be able to stretch their savings and unemployment income further if they already have a well-stocked pantry.”
They were tracking other purchases…
Before a recession people move from buying beef to chicken and pork, and then canned ham and fish. And as a personal anecdote, for the past several months, I strolled through my local Costco on my once a month purchases, and each time the retailer had placed a pallet full of double-pack of massive canned ham at the end of the aisle.
That’s no coincidence. And neither is it a coincidence that Costco is selling gold.
In every recession in the past, the price of gold goes up.
And how many opportunities do you get to buy and sell an asset you know is going to rapidly appreciate?
Not many…
But consider Costco as one of those that has rapidly appreciated.
Since October, Costco’s stock price has gone up about $130, over 20%…
From $554.82 to $681.53…
With record, all-time high trading volume since the start of this month.
In fact, if you look, that’s triple the all-time high trading volume set during the banking crisis in March 2023.
So let’s go back even further for a moment…
If you owned Costco(COST) pre-pandemic, or even in 2021 you would have more than doubled your investment come February 2022.
That’s almost a year before any of what I just mentioned started happening.
When the market was still questioning Costco, for example, about its ability to compete online. (Now that every retailer *has* to compete online pre-pandemic.)
Back in February 2022, when Munger was still kicking around, Yahoo! reported:
Charlie Munger: Costco will ‘be an absolute titan on the internet’
“Costco is going to be an absolute titan on the internet, because it’s got curated products that everybody trusts and huge purchasing power on a limited number of stocking units,” Munger said.
That being said, this was the result for Q3 of 2023…
$100M in sales of 1oz gold bars.
There are three and a half ways to go about buying Costco…
- You could purchase in tranche’s, or lump sums right now.
- You could purchase the dollar-cost-averaging way. Every Friday, simply use some money to buy a stock of choice and over time you may average a profit.
- You could wait to invest until mid-February or even March when retail purchases are typically lower. You would then assume Costco’s stock price is going down as well.
Bonus: You could do nothing! (That’s always an option. Caution is warranted. Look how steep the stock is “soaring…” Is it really that valuable? And, how much further can it go? Remember that what goes up, must come down…)
Aside from caution, Costco does pays a healthy dividend. They recently issued a fat, $15 special dividend per share. But the regular dividend is nowhere near aligned with the present stock valuation.
So maybe we’ll see changes soon?
In any event, in the near future, if you were looking for a safe haven asset, mainstream media might soon be declaring Costco stock as good as gold.
Maybe not in a post-pandemic world, but it’s a little-known fact that grocery stores were survivors AND thrivers during the Great Depression.
That’s everything for today.
***This is not investment advice. Anyone considering what is said in this email or from the author should consult a licensed financial advisor before making any purchases.
