Retailing and Costco

"If I were teaching at business school, I'd take people through retailing because it's easy to understand. Retailing is pretty simple. There are four or five strategies." by Charlie Munger (May 8, 2001)

"I'm a director of Costco. It's easy to understand. In the history of the world, few companies have succeeded on a 12% mark-up. They make it up with high volume. Costco has the right culture. They promote from within. It's a wonderful place to work." by Charlie Munger (May 8, 2001)

"I think that Costco is a better operator in the warehouse club format than Sam's. Both companies will do well in the future, but I predict that Costco will do better." by Charlie Munger (May 8, 2001)

How to get rich

“A young shareholder asked Munger how to follow in his footsteps, and Munger brought down the house by saying, "We get these questions a lot from the enterprising young. It's a very intelligent question: You look at some old guy who's rich and you ask, 'How can I become like you, except faster?'" (May 9, 2003)

Munger's reply was: "Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts... Slug it out one inch at a time, day by day, at the end of the day -- if you live long enough -- most people get what they deserve." (May 9, 2003)

The importance of reading

"In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time -- none, zero... You'd be amazed at how much Warren reads -- at how much I read. My children laugh at me. They think I'm a book with a couple of legs sticking out." by Charlie Munger (May 9, 2003)

Universities

"There's a lot wrong [with American universities]. I'd remove 3/4 of the faculty -- everything but the hard sciences. But nobody's going to do that, so we'll have to live with the defects. It's amazing how wrongheaded [the teaching is]. There is fatal disconnectedness. You have these squirrelly people in each department who don't see the big picture." by Charlie Munger (May 15, 2002)

Buying into stock declines

"Over many decades, our usual practice is that if [the stock of] something we like goes down, we buy more and more. Sometimes something happens, you realize you're wrong, and you get out. But if you develop correct confidence in your judgment, buy more and take advantage of stock prices." by Charlie Munger (May 15, 2002)

Investing mental models

"You need a different checklist and different mental models for different companies. I can never make it easy by saying, 'Here are three things.' You have to derive it yourself to ingrain it in your head for the rest of your life." by Charlie Munger (May 15, 2002)

"You must know the big ideas in the big disciplines, and use them routinely -- all of them, not just a few. Most people are trained in one model -- economics, for example -- and try to solve all problems in one way. You know the old saying: to the man with a hammer, the world looks like a nail. This is a dumb way of handling problems." by Charlie Munger (May 15, 2000)

Becoming a good investor

"If you're going to be an investor, you're going to make some investments where you don't have all the experience you need. But if you keep trying to get a little better over time, you'll start to make investments that are virtually certain to have a good outcome. The keys are discipline, hard work, and practice. It's like playing golf -- you have to work on it." by Charlie Munger (May 15, 2002)

Extraordinary Charges

"If it happens every year like clockwork, what's so extraordinary about it?" by Charlie Munger (May 8, 2001)

The scandal of American pension fund accounting

"IBM (NYSE: IBM) just raised its return expectations for its pension fund to 10%. [Editor's note: Companies can make adjustments to the assumptions that make up the value of their pension funds, which can affect reported earnings.] Most companies are at 9%. We think 6% is more realistic. They may believe it -- they're honest people -- but subconsciously they believe it because they WANT to believe it. It makes earnings good so they can promote the stock.” by Charlie Munger (May 8, 2001)

"The reason accountants don't say anything is best summed up by the saying, 'Whose bread I eat, his song I sing.' I think you're getting very foolish numbers in American accounting. I don't think it's willful dishonesty, but it might as well be." by Charlie Munger (May 8, 2001)

Future returns from equities

"If I'm wrong [about future stock market returns being in the mid-single digits], it could be for a bad reason. Stocks partly sell like bonds, based on expectations of future cash streams, and partly like Rembrandts, based on the fact that they've gone up in the past and are fashionable. If they trade more like Rembrandts in the future, then stocks will rise, but they will have no anchors. In this case, it's hard to predict how far, how high, and how long it will last.” by Charlie Munger (May 8, 2001)

"If stocks compound at 15% going forward, then it will be due to a big 'Rembrandt effect.' This is not good. Look at what happened in Japan, where stocks traded at 50 to 60 times earnings. This led to a 10-year depression. I think that was a special situation, though. My guess is that we won't get extreme 'Rembrandtization' and the returns will be 6%." by Charlie Munger (May 8, 2001)