Rare extreme means rare opportunity

As I have discussed many times before, the Street sentiment is a very interesting and weird thing. We see schizophrenic reactions all the time that traders’ mood can change widely within short period of time. But one thing has been proven correct again and again is that, when the sentiment reaches to the extreme point, an opposite trend will start soon. Most recently,I have predicted that the next big move for long term interest should be goingup, not down, due to extremely depressing mood we were seeing a little whileback for interest rates. See what has happened in just a few weeks? A 15% jump of the 10 year interest rate has occurred since my call. I think we are seeing something similar now about Costco (COST).

It has been brutal for COST in the past week or so that 15% of its market cap has been cut off within days. Has anything fundamentally changed for COST  in the past few days? Nope! Yes, the Amazon buyout of Whole Food may have some long term impact on the bottom lines for Costco but Costco is not a fragile business that will only be sitting there for being slaughtered! Rather it has a very reliable and well established business mode that will continue successfully. For sure they will need to seriously think about the challenges from Amazon and adjust accordingly but I have no doubt it will continue to prevail. A couple of years ago, we saw a similar concern when people dumped Walmart stocks like there was no tomorrow anymore for it. See what has happened since then for Walmart? You can bet similar thing will happen also for Costco!

I think the past week of sharp selloff for Costco is way of overreaction and it provides rare opportunity for long term investors like me to accumulate COST. In the past 15 years, such kind of plunges within days have only occurred a few times for COST and each time, it has come back more strongly. No exception this time. You can mark my word!