If you were in a room with all the co-shareholders of your stocks right now, I think you would be shocked at what you would see.
Let's take the Costco (COST) room. You see the stock at the cheapest valuation that you can recall, a great American retailer with a stock that's down 70 points from its high and off 15% for the year despite recording yet one more killer double-digit-gaining quarter Thursday night.
You are thinking that Costco's sales in every department were superb, that costs are under control and that they are going to open a slew of stores in the second half, something that always drives profitability because it makes the most money off its membership cards and there are now 108 million cardholders, most of whom would gladly pay more if they were asked given how much they save shopping there. You've got 14% sales growth, an unheard-of number for most stores but just plain-old consistently terrific for Costco, which is a holding of my Action Alerts PLUS charitable trust.
So you'll pick up 10 shares at $319 and wait for it to go lower to buy more, precisely what I know I would instruct you to do if you want my tutelage.
But now turn to your left. You know who that person is? Someone who bought 1,000 shares of Costco at $350 but did so on margin and needs to put up more capital to keep the position on. However, that person also is hurting with his position in Tesla (TSLA) , is troubled by the decline in his AMC Entertainment (AMC) calls and wonders when this Ryan Cohen fellow is going to make his move with GameStop (GME) .
This person to your left is your worst nightmare because he doesn't care about all those terrific details about the quarter reported last night. He's just thinking I can sell this Costco before the margin clerk does it for me. If I get rid of Costco, then maybe I live to play again.
Now turn to your right. There's a person who runs money professionally. She has a staggeringly large position in Costco, buying 10,000 shares every 10 points down, beginning at $380. Normally that's prudent; after all, we don't want to burn our capital all at once.
Suddenly, though, several of her investors beseech her saying they need money because they are with some other managers who have crushed them and they want to redeem. So what does she see? How about a stock that can raise a lot of money instantly to pay off these short-timers. She's actually grateful that Costco is not down more and is thrilled that, with its $310 price tag, selling 80,000 shares raises a huge amount of capital. Costco is her ideal source of funds.
Now, you see that man sitting in the corner, the guy who's looking at his stocks on his iPhone? He wants to buy some Costco but all he sees is a stock with a chart that is from hunger. So instead of buying it, he decides to short it, buying some puts. Why not? It's rolling over.
Did he listen last night to Rich Galanti, Costco's chief financial officer, on the call talking about how profitable the business is? Frankly, not only does he not care, but he isn't sure he should even be in the Costco room because all he's looking at is a chart that says sell, so he piles on with a giant put buy that gets translated into a short sale by the market maker laying off risk.
Finally, take a look behind you. Don't fixate, turn right back, because that man is crying. Why? Because he owns a slew of tech stocks, the semis, which had been so good. He owns cloud stocks, cybersecurity stocks, semiconductor stocks, and, along the way he happened to pick up some Costco at about $100 a share.
All his other stocks are getting clobbered. So what does he do? He sells his best one, the one he has the biggest gain in because he doesn't want to lose that gain. He sells his Costco.
Do you notice a pattern? How Costco actually is doing means nothing to any of these people? Costco might as well be some awful five-and-dime or a mall-based shoe store, or maybe a Lit's or Gimbels where my folks worked, or a Sears or maybe a Penney (JCP) . Or it could be any of the fantastic, essential big-box stores that are now giving up most of the gains they have made in the last year.
So the fact that Costco is about as cheap as I have ever seen it is a total abstraction. Sure, maybe it is a reason to buy it over the long term. But the people in that room are not your friends; they are your enemies. They want to take your money from you, and at this pace, they will.