The Sunday Brief · where the market sits, one stock spotlight, one principle.
Time is the only edge most investors have.
here is a small list of edges that work in public markets. Information edge: knowing something the market does not, which is mostly illegal for individual investors and hard for everyone else. Process edge: a research workflow that surfaces ideas other people miss, which works but is expensive to build and operate. Behavioral edge: the ability to sit through a 30% drawdown without selling. The first two are scarce. The third is available to anyone who decides to use it.
The edge that gets used the least is the one most investors already have, and that is time. A 30-year horizon allows you to compound through regimes that the average professional cannot afford to wait out, because their performance is measured quarterly. You are not measured quarterly. That asymmetry is the most valuable thing on your side of the table. The portfolios we publish are built to be held the way amateurs can hold them, which is patiently. The patience is most of the work.
The market is sitting in a regime that does not require action. We use stretches like this to read, not to trade.
Year-to-date dispersion across the model portfolios is normal. We expect to add or trim only on the next scheduled rebalance dates.
COSTCostco Wholesale Corporation
Most retailers compete on price and lose on margin. Costco competes on price and wins on margin, because the business model is upside down compared to the rest of retail. Costco does not make money selling you the rotisserie chicken or the toilet paper. It makes money on the membership fee. The retail floor is a customer-acquisition tool for the loyalty subscription. That distinction is small on paper and enormous in the financials over time.
Costco's membership fees run roughly $5 billion a year and convert near 90% of operating income. Renewal rates have hovered around 90% for two decades, which puts Costco in the same retention tier as enterprise SaaS companies. The merchandise gross margin is razor-thin by design, typically capped at 11%, versus 28% at Walmart and 35% at Target, because the goal is to keep the deal so undeniably good that members do not consider canceling. The cap is a strategic asset, not a constraint. Costco has effectively turned a grocery store into a recurring-revenue subscription business.
The traditional valuation knock on Costco is that the multiple is high. The traditional reply is that the business deserves a high multiple because the membership cash flow is recurring, predictable, and growing. The deeper point is that Costco's compounding has been remarkably resilient across regimes, the 2008 recession, the 2020 shutdown, the 2022 inflation cycle, because the customer base buys staples, the value proposition strengthens when consumers are stretched, and the membership renewal cycle absorbs short-term cyclicality. That kind of resilience is not common.
Costco is held in Core 20 as a quality-compounder anchor. We accept that the multiple is rarely cheap. We hold the position because the business model converts customer loyalty into operating leverage in a way most retailers structurally cannot replicate. Compounding requires durability. Costco has it.
“A 20% loss does not feel half as bad as a 40% loss. It feels twice as bad as a 20% gain feels good.”
Loss aversion, restated
Decades of research from Kahneman, Tversky, and the behavioral finance literature converge on a single finding. The psychological pain of losing a dollar is roughly twice the pleasure of gaining a dollar. That asymmetry is not a rounding error. It shapes nearly every consequential decision an investor makes during a drawdown.
Loss aversion is what causes people to sell at the bottom, lock in losses they will never recover, and refuse to redeploy capital after a panic event. The pain is asymmetric, the response is asymmetric, and the long-term performance penalty is enormous. Investors who panic out of equities in major drawdowns and miss the recovery typically underperform a passive index by multiple percentage points per year over a working life.
The single best thing we know to do about it is to put the decision out of your hands. Predetermined rebalancing rules. Position sizes you can hold without losing sleep. Systems that do not reward heroic conviction during a crisis. Process over feeling. Always.
Get the next one in your inbox.
The Sunday Brief lands every Sunday morning around 8:30 AM ET. Free. No urgency, no spam. Calm, measured, useful.
Subscribe freeEducational research from Advising Alpha. We are a publisher under Section 202(a)(11)(D) of the Investment Advisers Act of 1940, not a registered investment adviser. Past performance does not guarantee future results. Full disclaimer at advisingalpha.com/disclaimer.