Costco, along with Sam's Club, dominates the warehouse club industry, with annual sales of $35 billion in 2001.
Costco has a retail concept where customers who pay a standard annual fee of $45 can enter the store for a year.
Instead, the company offers very low product prices through a constant low-price strategy that only adds a 14% markup to branded products and a 15% markup to private label products.
It's a very simple and honest customer proposition.
Membership fees help build customer loyalty, and most of these sales are recorded as profit.
In return, Costco sells its products to cover its operating expenses.
Moreover, by adhering to a standard markup rate, savings from product acquisition or scale are passed on to consumers in the form of lower prices, which in turn fuels growth and further extends the advantage of scale.
It's a retail version of the perpetual motion machine, and it's the model that Walmart has used extensively.
(Omitted) Let’s find out the growth potential.
The company operates 21 stores in Washington state, which has only 2% of the U.S. population.
Applying this density nationwide, there is room to expand to about 1,000 stores in the US (currently 284) and about 200 stores in the UK (currently 14).
At a 10% annual growth rate, the company can grow for the next 13 years.
At a $30 stock price, the company is a cash cow.
As operating rates rise, we expect the company to show high profitability and a reasonable growth rate, which suggests that the company has a valuation of over $50 per share.
Our analysis suggests that Costco is a perfect growth stock, available for purchase at half its true market value.
---From the "2002 Annual Letter"

Bill Miller said there are roughly three competitive advantages in investing.
Informational competitive advantage: knowing meaningful information that no one else knows; analytical competitive advantage: harvesting public information to reach superior conclusions; and psychological competitive advantage: relating to investor behavior.
Typically, a sustainable competitive advantage is achieved when analytical and psychological competitive advantages are combined.
The combination of our investors' patience and our fund managers' analytical and psychological inclinations gives Nomad an overwhelming competitive advantage.
(Omitted) We spend a significant amount of time thinking about what corporate actions will make the future more predictable and reduce investment risk.
Costco's obsession with sharing the efficiencies of scale with its customers gives it a more predictable and less risky future outlook than typical companies.
That's why Costco is our largest investment in our portfolio.
---From the "2005 First Half Letter"

Proper investing is like an unpopular sport.
This means that to achieve better investment performance than others, you have to act differently from the crowd.
What the crowd lacks is patience.
(Omitted) It is easier to predict business performance several years from now than in the near future.
For example, we have no idea how the stock market will end this year.
However, given the company's strategy, capital allocation, and valuation at the time of acquisition, we believe we have some idea of ​​how the companies we invest in will develop over the next few years.
A longer investment period can increase your stock investment returns while also reducing your risk.
(Omitted) Our goal is to ‘hand over (the investment) management authority to a good person at a good price.’
That's what investing is.
Zakaria and I focus on deep reality, the inputs that drive change in future corporate value.
While our industry peers trade the short-term, most competitive part of the yield curve, we invest in the long-term, least competitive part.
We react to completely different stimuli.
---From the "2006 Annual Letter"

Nomad Investments has seen revenue growth of nearly 30% annually during recessions.
This figure is a weighted average that includes weak companies like weeds.
Two-thirds of the companies we invest in are companies with a "shared economies of scale" business model.
This is a model where increased sales lead to scale advantages, scale advantages lead to cost reductions, cost reductions lead to lower selling prices, and lower selling prices lead to increased sales.
In the process, the moat surrounding the company would have widened significantly.
Therefore, for 'sharing economies of scale' companies, a recession is synonymous with a significant improvement in their competitive positioning.
This company has a lot to achieve in the future, but we intend to leave it as is.
It might be tempting for Zakaria and I to declare victory, high-five, sell the winning stock, and move on to a new investment.
But I think that such behavior is fraught with reinvestment risks.
(Omitted) However, the decision not to change the portfolio is an active decision, and we will continue to research as always.
We're discovering a lot of great companies that you can buy at prices that actually seem reasonable.
But it's not any better than the companies we already own.
We move forward by constantly comparing what we have with alternatives, but when it comes to our portfolios, we usually do nothing.

---From the "2010 Annual Letter"