POST OF THE DAY
Costco Wholesale Corp.
Make Sense of the Analysis

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By Har1en
May 1, 2009

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Linda, the longer you invest, the more times you run into occasions where various advisory services have different stances on the stocks you choose. Do not concern yourself with the buy, sell, or hold recommendations in general. Instead, read the analysis and see if it makes sense to you.

The 'analysis' you posted reflects some sort of model based statistical analysis, basically, a black box. You don't know what went in, or what it did with the numbers it had. In short, it is analytical astrology.

Much as you cannot see where a car is heading when you're looking out the rear view mirror, you cannot predict the future from models based on past performance. Believe me, I've built some models to try this, and it never works out. The truly honest models give you result ranges so wide that you cannot make decisions based on them anyhow.

If you look at successful investment professionals, people like Warren Buffett and Peter Lynch, they tend to buy based on the qualities of the car or the driver (to extend the whole car analogy). If you can't see the road ahead as an investor, would you rather hitch a ride in a Yugo or a Hum-vee? A Yugo might use less gas, but if the road turns to dirt and rocks, wouldn't you want to be in the Hummer?

So when you think about buying Costco, ask yourself how comfortable you would be buying this company based on the analysis. If you don't understand the analysis, chances are it's mumbo-jumbo. Seriously.

If you have doubts about your skills, your advisers' competence, or a particular stock, then buy a smaller stake than you ordinarily would. My advice is to start small, make sure you diversify into different industries, and learn all you can.

As for investing in COST, I've been a shareholder for several years and unfortunately you're getting it at near my own cost (about 12% away). That's pretty good, if you care about some random dude's opinion.

Har1en