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Charlie Munger: Turning $2 million into $2 trillion

12 points by byrneseyeview 18y ago

Prrometheus 18y ago
There's a lot of hindsight there, even in the first few paragraphs. For example, the monetary inflation of the 20th century wouldn't have been obvious to someone living in 1884 right after the monetary tightening accompanying the resumption of the gold standard. Inflation occurs in societies that debase their currency or that discover large new sources of whatever commodity their currency is backed by. It is far from a universal occurrence. Constant inflation did not occur in the United States until after the FDR presidency when we adopted a fiat currency standard. Making a company worth $2 trillion 1884 dollars is much harder than making a company worth $2 trillion of today's dollars or of 1865 dollars. Couldn't bring myself to finish. If there are good ideas in there somewhere, let me know.
- byrneseyeview 18y ago
  The inflation thing has been an article of faith with Buffett and Munger. I think a fairly smart person could see that: unless the government has a bias against extending suffrage, you should expect politicians to advocate extending suffrage to more groups (so those groups feel they owe it to whoever let them vote); so there will be more voters; so politicians will have an incentive to do take more broadly redistributive action; so if they can have their money on the benefits (projects funded by deficit spending) but not on the costs (depreciation of financial assets), they'll go for it. This is a huge part of the reason that Buffett and Munger have moved away from capital-intensive industries. I thought one interesting part was the mix of different cognitive biases used to make Coke popular: the idea that universal distribution was a form of 'social proof' was new to me (the first time I read it; KO is up about 40% including dividends since then). And the inflation thing should not be a big deal. Besides those paragraphs, the essay holds true if you have a real-money target (with the same compounded growth) or a target in terms of ounces of gold or cowrie shells. It's not like Coca-Cola made their money because they were short the dollar through leverage.
  - Prrometheus 18y ago
    >And the inflation thing should not be a big deal. I know it's not a big deal, it's just in an early paragraph and a glaring example of hindsight. If you'll recall, in the late 19th century farmers in the United States wanted to legalize silver as currency because deflation was making it hard for them to pay back their mortgages.
- aston 18y ago
  More 20-20 hindsight follows in later paragraphs. There's a lot of unfortunate bellyaching about random 'mistakes' the Coca-Cola company made that clearly would not have been worth thinking about on the first pitch of the company (like worrying about letting other products use the word "cola"). By the end you realize it's less of an instructional on how to build a good soft drink business and more of a rant about how there aren't any good sociologists/psychologists working at a Coca-Cola and that the academics aren't paying enough attention. Not really that useful...
wallflower 18y ago
The true effect of Coca-cola: Soft drinks were the trojan horse that allowed food manufactures to begin adding sugar (for taste) across the board Sugar consumption per person in USA - 1850s (52 lb/yr) 2000s (150 lb/yr) [http://www.cspinet.org/new/sugar_limit.html http://www.cspinet.org/new/sugar_limit.html]
- akd 18y ago
  It's also extremely refreshing on a summer day. Let me worry about my own sugar intake.
  - deleted 18y ago
    [deleted]
  - Tichy 18y ago
    As long as you are not in my health insurance pool, fine... A good rule of thumb seems to me: avoid drinks that only taste good when cooled.
    - byrneseyeview 18y ago
      Oddly, I can only stand warm/cool coffee if it's been sweetened. Is this rule of thumb based on a known phenomenon re: sweet drinks?
      - Tichy 18y ago
        Probably the underlying rule is really avoid sweetened drinks.
  - MisterMerkin 18y ago
    So is ice water.
mattmaroon 18y ago
I think it's easy to criticize the New Coke fiasco in hindsight. But when your product is losing by a wide margin in every blind taste test to a competitor that is smaller but growing a hell of a lot faster than you are, that's gotta have the people in the C-suite shitting bricks. And I'm still not saying I disagree with him, but I think it's a little more than a lack of knowledge about Pavlovian conditioning that leads to a mistake like that.
- byrneseyeview 18y ago
  Coca-Cola had invested a whole lot in making their flavor synonymous with, well, every positive emotion they could think of. It is amazing that they decided to get rid of their flavor and try again. It would be like Google getting into the farm equipment business and just shutting down google.com because it was distracting them.
  - Retric 18y ago
    I think new coke had more to do with switching to corn syrup than anything else. Corn syrup tastes worse so you can't do a strait up switch but by introduce new Coke and then bring back the old taste with a minor change and people don't notice.
    - byrneseyeview 18y ago
      Does Pepsi use corn syrup? Do the other soda companies? It's a little weird for them to risk their brand on making their product worse by way of risking their brand on throwing the whole product out. And (I am not a flavor scientist, so this is perhaps uninformed) why not just sweeten with 10% corn syrup and 90% sugar, and gradually raise the syrup ratio?
    - mattmaroon 18y ago
      They had actually switched to corn syrup before New Coke, but not all bottlers were using it yet. All bottlers did use it after. A lot of people (oddly, even in the markets that had already switched to HFCS) thought that Coke Classic was not genuinely the same as the old formula for that reason.

12 points by byrneseyeview 18y ago

There's a lot of hindsight there, even in the first few paragraphs. For example, the monetary inflation of the 20th century wouldn't have been obvious to someone living in 1884 right after the monetary tightening accompanying the resumption of the gold standard. Inflation occurs in societies that debase their currency or that discover large new sources of whatever commodity their currency is backed by. It is far from a universal occurrence. Constant inflation did not occur in the United States until after the FDR presidency when we adopted a fiat currency standard. Making a company worth $2 trillion 1884 dollars is much harder than making a company worth $2 trillion of today's dollars or of 1865 dollars. Couldn't bring myself to finish. If there are good ideas in there somewhere, let me know.

byrneseyeview 18y ago
The inflation thing has been an article of faith with Buffett and Munger. I think a fairly smart person could see that: unless the government has a bias against extending suffrage, you should expect politicians to advocate extending suffrage to more groups (so those groups feel they owe it to whoever let them vote); so there will be more voters; so politicians will have an incentive to do take more broadly redistributive action; so if they can have their money on the benefits (projects funded by deficit spending) but not on the costs (depreciation of financial assets), they'll go for it. This is a huge part of the reason that Buffett and Munger have moved away from capital-intensive industries. I thought one interesting part was the mix of different cognitive biases used to make Coke popular: the idea that universal distribution was a form of 'social proof' was new to me (the first time I read it; KO is up about 40% including dividends since then). And the inflation thing should not be a big deal. Besides those paragraphs, the essay holds true if you have a real-money target (with the same compounded growth) or a target in terms of ounces of gold or cowrie shells. It's not like Coca-Cola made their money because they were short the dollar through leverage.
- Prrometheus 18y ago
  >And the inflation thing should not be a big deal. I know it's not a big deal, it's just in an early paragraph and a glaring example of hindsight. If you'll recall, in the late 19th century farmers in the United States wanted to legalize silver as currency because deflation was making it hard for them to pay back their mortgages.
aston 18y ago
More 20-20 hindsight follows in later paragraphs. There's a lot of unfortunate bellyaching about random 'mistakes' the Coca-Cola company made that clearly would not have been worth thinking about on the first pitch of the company (like worrying about letting other products use the word "cola"). By the end you realize it's less of an instructional on how to build a good soft drink business and more of a rant about how there aren't any good sociologists/psychologists working at a Coca-Cola and that the academics aren't paying enough attention. Not really that useful...

wallflower 18y ago

The true effect of Coca-cola: Soft drinks were the trojan horse that allowed food manufactures to begin adding sugar (for taste) across the board Sugar consumption per person in USA - 1850s (52 lb/yr) 2000s (150 lb/yr) [http://www.cspinet.org/new/sugar_limit.html http://www.cspinet.org/new/sugar_limit.html]

akd 18y ago
It's also extremely refreshing on a summer day. Let me worry about my own sugar intake.
- deleted 18y ago
  [deleted]
- Tichy 18y ago
  As long as you are not in my health insurance pool, fine... A good rule of thumb seems to me: avoid drinks that only taste good when cooled.
  - byrneseyeview 18y ago
    Oddly, I can only stand warm/cool coffee if it's been sweetened. Is this rule of thumb based on a known phenomenon re: sweet drinks?
    - Tichy 18y ago
      Probably the underlying rule is really avoid sweetened drinks.
- MisterMerkin 18y ago
  So is ice water.

mattmaroon 18y ago

I think it's easy to criticize the New Coke fiasco in hindsight. But when your product is losing by a wide margin in every blind taste test to a competitor that is smaller but growing a hell of a lot faster than you are, that's gotta have the people in the C-suite shitting bricks. And I'm still not saying I disagree with him, but I think it's a little more than a lack of knowledge about Pavlovian conditioning that leads to a mistake like that.

byrneseyeview 18y ago
Coca-Cola had invested a whole lot in making their flavor synonymous with, well, every positive emotion they could think of. It is amazing that they decided to get rid of their flavor and try again. It would be like Google getting into the farm equipment business and just shutting down google.com because it was distracting them.
- Retric 18y ago
  I think new coke had more to do with switching to corn syrup than anything else. Corn syrup tastes worse so you can't do a strait up switch but by introduce new Coke and then bring back the old taste with a minor change and people don't notice.
  - byrneseyeview 18y ago
    Does Pepsi use corn syrup? Do the other soda companies? It's a little weird for them to risk their brand on making their product worse by way of risking their brand on throwing the whole product out. And (I am not a flavor scientist, so this is perhaps uninformed) why not just sweeten with 10% corn syrup and 90% sugar, and gradually raise the syrup ratio?
  - mattmaroon 18y ago
    They had actually switched to corn syrup before New Coke, but not all bottlers were using it yet. All bottlers did use it after. A lot of people (oddly, even in the markets that had already switched to HFCS) thought that Coke Classic was not genuinely the same as the old formula for that reason.