What were the key factors Charlie Munger considered when investing in Costco?

What factors did Charlie Munger prioritize most when investing in Costco?

Hey there! I'm someone who loves studying investments and business models, and I've read quite a few books by Munger and Buffett. Your question is really interesting, so let me briefly share my understanding. You know, Munger doesn’t chase short-term hype when investing—he focuses on whether a company can generate sustainable profits over the long haul. He was particularly bullish on Costco and invested heavily (Berkshire Hathaway holds a significant stake). So, what did he value most? Let me break it down step by step in plain language.

1. The Core: Costco’s Business Model—Membership + Low-Price Strategy

• What Munger admired most was Costco’s "simple yet powerful" approach. Unlike regular supermarkets, Costco profits from membership fees. You pay an annual fee (e.g., $60 in the U.S.) just to shop there. Products are sold at extremely low prices, with razor-thin margins, but membership fees become their primary profit driver.
• Why did Munger love this? Because it acts like a "moat"—competitors can’t easily replicate it. Once customers become members, they keep coming back for the unbeatable prices and quality, creating fierce loyalty. This builds an incredibly sticky customer base that won’t easily defect to Walmart or Amazon.

2. "Enduring Competitive Advantage" in Munger’s Eyes

• Munger often said investing is about finding companies with "lasting advantages." Costco’s edge lies in its massive scale and highly efficient supply chain, allowing it to secure the lowest prices from suppliers and pass all savings to customers. This isn’t a short-term gimmick—it’s sustainable for decades.
• He especially highlighted Costco’s founder, Sol Price (creator of FedMart and Price Club, which later merged with Costco). Munger believed Sol’s philosophy—"maximize value for customers, not profits"—was genius. It kept Costco focused on efficiency and customer satisfaction, unlike retailers obsessed with raising prices.

3. Why Not Other Factors, Like Stock Price or Growth Rate?

• Munger wasn’t a trend-chaser. He ignored short-term stock fluctuations and didn’t blindly worship high growth numbers. His investment in Costco centered on its ability to "stand the test of time." For example, Costco treats employees well (higher wages, great benefits), boosting morale and service quality, which in turn attracts more customers. Munger called this a "virtuous cycle."
• Simply put, he valued the essence of "value investing": buying a great company at a fair price and holding it forever. Costco’s stock has multiplied many times since the 1980s, but Munger recognized early that its model wouldn’t lose its essence.

If you’re new to investing, I’d recommend checking out Munger’s book Poor Charlie’s Almanack, where he discusses Costco as a case study. In short, what mattered most to Munger was the model’s "sustainability and simplicity"—it’s straightforward yet incredibly potent, enabling the company to compound like a snowball. Feel free to ask if you have more questions!