Costco Wholesale (COST) is an excellent corporation. It has an extraordinary Board of Directors that includes Berkshire Hathaway Vice Chairman Charlie Munger, has grown profits by 11% annually for a decade, has 195,000 workers that generally experience better working conditions than many of their similarly situated peers, and has an excellent balance sheet that features $200 million more cash on hand than total debt obligations required (which is extraordinary for a large retail corporation). As best I can tell, it meets every characteristic of Benjamin Graham’s “Defensive Investor” checklist.

Except one. Valuation.

It is no secret how well run Costco is, and the current $151 per share price tag reflects this information. It makes about $5.35 per share in profits. That’s a valuation of 28.2x earnings. Looking out over the medium term, this current valuation mixed with expected future returns is exactly the kind of thing that will give you … Read the rest of this article!

Irving Fisher’s “The Money Illusion” is a life-changing economic treatise because it strongly advances the principle of thinking in terms of purchasing power rather than nominal dollars. We all have the intuitive sense to recognize this over long periods of time, as we know when we hear stories of grandpa making $1 per day or buying five-cent milk shares.

We are less cognizant of this over the intervals of our own life. If you have a $500,000 collection of investment assets, and inflation runs at 3.5% per year, you must have $517,500 in total at the end of a twelve-month period in order to maintain the status quo. How many people would correctly observe that their purchasing power had diminished if their account stated $515,000 at the end of the period? Not many.

In that spirit, I have paid attention to an unlikely source to gauge metrics of purchasing power–prisoners. … Read the rest of this article!