Unfortunately for me, I’ve learned many important investment lessons the hard way.
In 2006, I made an error that still costs me.
At the time, I was heavily invested in dividend-paying stocks.
I loved running stock screens and sifting through income-paying stocks.
I remember that Costco (Nasdaq: COST) popped up on my radar.
Obviously, I knew the company. As a customer, I loved shopping there.
And seeing as the great American investor Charlie Munger was a major shareholder, I’d been watching the business for years.
What I disliked was Costco’s paltry yield of less than 1%.
So being into dividends at the time, I passed on the stock.
What a colossal error!
I forgot how incredible the long-term stock market performance could be for companies with incredible brands that drive decades of growth.
Time is the friend of great businesses like this.
In 2006, Costco’s quarterly dividend was just $0.10 per share. Since then, that dividend has increased relentlessly.
Today, the quarterly dividend is $0.80, an 800% increase from where I should have bought.
That hurts, but the story gets even worse…
Costco has repeatedly made special dividend payments to shareholders.
The company paid a $7 per share special dividend in 2012, a $5 per share special dividend in 2015, a $7 per share special dividend in 2017 and a $10 per share special dividend in late 2020.
I could have received $29 per share in special dividends alone! And for Costco shares that I would have paid $44 for in 2006!
Yet there’s more to regret…
Costco’s share price performance has been exceptional.
A $10,000 investment in the S&P 500 at the start of January 2006 is now worth almost $35,000.
Meanwhile a similar investment in Costco is now worth $110,000 – and that doesn’t include the $29 per share in special dividends!
I’ve cost myself a lot of money with this mistake.
The silver lining is that I learned a valuable lesson…
When dominant companies with top-tier brands, great balance sheets and strong competitive moats are available at attractive valuations, you simply must take advantage.
Like you should right now in today’s market.
Great Tech Companies Are Now Attractively Priced
Like a broken record, I’ve repeatedly advised readers to steer clear of expensively priced growth technology stocks.
Last summer, I warned you about how top-heavy the S&P 500 had become because of the Big Tech names.
Now I love these big dominant tech companies.
They have powerful brands, generate gobs of free cash flow and have terrific growth prospects, just like Costco.
My problem with these stocks has been their exorbitant price tags.
But over the past six months, that has changed.
Take a look at this chart of the stocks of three great companies, Meta Platforms (Nasdaq: FB), Netflix (Nasdaq: NFLX) and PayPal (Nasdaq: PYPL).
On average, these three companies have seen their share prices cut in half.
They are no longer overpriced.
They’re now trading at far lower valuation multiples than we’ve seen in a long time.
On a price-to-revenue basis, this group has gone from 10 times to 15 times revenue all the way down to five times revenue.
To be clear, I’m not saying that these stocks can’t go lower from here.
My experience is that stocks always fall further after I first get interested in them.
I’m saying that now is the time to start buying these great companies that have for so long been too expensive to touch.
Start slowly, and then buy more as the share price drops.
These are great companies to buy and hold for the next 10 years.
So don’t make my Costco mistake and let them give you the slip.