I love Costco and own the stock, but at a 37.3 P/E, I think people "late to the game" in buying it are just plain crazy. Now don't get me wrong, I like that market participants pushed COST over 300 today. That said, there is no way in gods green earth that I would buy at these "nose bleed" levels. They got to be smoking something!
Costco has put up fantastic numbers over the last 19 years. Attached are the trends in sales, net income, EPS and return on equity. But not matter how good things are, there is the point of plain ole paying too much.
There has been a huge exodus out of equities in the last year. You only have to look at the Funds Track charts in Barron's mutual fund section to see it.
So if many are fleeing the stock markets to the safety of bonds or money markets, who is driving the markets to new all time highs?
My theory is fund managers are scrambling to beat out their competitors by any means, even if it means buying stocks with high valuations to hold on to assets under management (AUM). Keeping switching stocks to eak out "just a little more" is the name of the game. This game works well while stocks are going up, but when the stocks start downward, it becomes a game of musical chairs. With musical chairs, the chairs (higher returns) become less and less with each round when the music stops (market drops). Unfortunately, not getting a seat (higher returns) means you are out of the game (unemployed). Therefore, trading becomes much more wide-spread as those "playing the game" scramble to stay in the game.
I always liked playing musical chairs as a kid, but when it comes to stocks, I prefer to sit back and just watch the action.
