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Charlie Munger's Reflections on Costco, an Investment Warren Buffett Passed Up

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Charlie Munger's Belief in Costco and Warren Buffett's Reluctance

Charlie Munger, the longtime business partner of Warren Buffett, has been a staunch supporter of Costco Wholesale Corp., considering it one of his best investments and vowing to hold onto his shares indefinitely. However, Buffett has not shared the same enthusiasm for the membership-only, big-box store. Munger recently revealed in an interview that he had invested in Costco prior to its merger with Price Club in 1993 and joined its board in 1997. Despite Munger's attempts to convince Buffett to invest in the wholesale club, the Berkshire Hathaway CEO remained unconvinced, citing his skepticism towards the retail industry.

Munger's Enthusiasm for Costco

Munger, often referred to as Buffett's right-hand man, expressed his admiration for Costco's membership business, rewards program, and efficient stores with strong management. He even believes that Costco has the potential to become a major player in the online retail space, posing a threat to Amazon. Munger's conviction stems from the company's ability to consistently offer lower prices than its competitors, which he acknowledges requires exceptional execution and unwavering dedication over the years.

Costco's Growth and Berkshire's Position

Munger's faith in Costco is reflected in his ownership of 188,000 shares as of October. Over the years, Costco's stock has experienced remarkable growth, surging from less than $5 per share in the early 1980s to over $560 per share today. While Berkshire Hathaway previously held a 1% stake in Costco, the conglomerate decided to exit the position in 2020. Berkshire's retail investments typically focus on specialty stores or well-known brands like Borsheim's Fine Jewelry, See's Candies, and Dairy Queen.

Light-hearted Banter between Munger and Buffett

Buffett has learned to make light-hearted jokes about Munger's unwavering support for Costco. During Berkshire's annual meeting in 2011, Buffett humorously recounted a scenario involving plane hijackers asking for their last requests. Munger requested to give a speech on the virtues of Costco, while Buffett jokingly asked to be shot first. Despite their playful banter, Buffett acknowledges that he could be wrong about Costco, just as he made a mistake in reducing Berkshire's stake in Apple. He values Munger's insights and believes that Munger was likely right in both instances. In conclusion, Charlie Munger's belief in the potential of Costco and Warren Buffett's reluctance highlight their differing perspectives on the retail industry. While Munger sees great value in Costco's business model and growth prospects, Buffett remains cautious. Their light-hearted banter underscores their mutual respect and willingness to consider each other's viewpoints.

Differing Views: Munger's Confidence in Costco vs. Buffett's Skepticism

Charlie Munger's unwavering support for Costco Wholesale Corp. contrasts sharply with Warren Buffett's cautious stance, revealing differing perspectives on the retail industry. Munger's conviction in Costco's potential and Buffett's reluctance provide valuable lessons for new businesses navigating the retail sector.

Learning from Munger's Enthusiasm for Costco

Munger's admiration for Costco's membership business, rewards program, and efficient stores with strong management highlights the importance of a robust business model and operational efficiency. His belief that Costco could become a major online retail player signals the potential of e-commerce, a crucial consideration for new businesses in the retail sector.

Buffett's Caution: A Lesson in Prudence

Buffett's reluctance to invest heavily in Costco, despite Munger's encouragement, underscores his skepticism towards the retail industry. This caution serves as a reminder for new businesses to thoroughly evaluate market dynamics and potential challenges before diving in.
Costco's Growth and Berkshire's Retail Investments
The remarkable growth of Costco's stock and Berkshire Hathaway's previous stake in the company indicate the potential for success in the retail sector. However, Berkshire's focus on specialty stores or well-known brands suggests that carving a unique niche or building a strong brand could be key to thriving in this industry.
Respecting Differing Perspectives
The playful banter between Munger and Buffett underscores the importance of respecting differing viewpoints in business decisions. As new businesses form, considering various perspectives can lead to more robust strategies and better risk management. Ultimately, the contrasting views of Munger and Buffett on Costco offer valuable insights for new businesses navigating the complex landscape of the retail industry.
Story First Published at: https://www.cnbc.com/2023/11/04/munger-reflects-on-the-investment-warren-buffett-passed-on-costco.html
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