Which companies did Charlie Munger praise as 'exemplars', and why?

Okay, let's talk about the companies Charlie Munger considers "paragons."

Munger doesn't look at companies like we ordinary folks look at stock charts. He's more like a seasoned doctor diagnosing a patient, examining a company's "constitution" and "character." The "exemplary" companies he speaks of are often not the ones that surge the most in the short term, but the kind of good businesses that let you sleep soundly at night, that you can hold long-term, and even pass down to the next generation.

Here are a few "model students" he frequently mentions and why he holds them in such high regard:

1. Costco – The Ultimate Business System

This is Munger's "number one paragon." He even served on Costco's board for many years.

• Why is it a paragon? Simply put, Costco's business model is an exquisitely designed "flywheel."

  1. Membership fees are the profit engine: Think about it – you need a paid annual membership to shop at Costco. This fee is almost pure profit for Costco. Essentially, it doesn't make money on product markups; it makes money by "selling tickets."
  2. Extreme low prices reward members: Since the "ticket" already covers profits, goods can be sold to you near cost. This makes you think, "Wow, what a great deal!" and strongly motivates membership renewal.
  3. Creates a virtuous cycle: More members -> Larger purchasing volumes -> Lower prices from suppliers -> Lower selling prices -> Attracts more members... This wheel spins tirelessly, making it hard for competitors to break in.

  Munger admires this "win-win" system. Costco maximizes value for customers while treating employees well (famous in retail for good pay and benefits). Ultimately, the company, customers, and employees all win. It's a morally sound and incredibly smart business model.

2. Coca-Cola – The Unassailable Brand Moat

This is one of Buffett and Munger's most classic investments and Munger's favorite example when explaining the "moat" concept.

• Why is it a paragon? Imagine a castle with a wide, deep, crocodile-infested moat – enemies can't easily attack, right? Coca-Cola's "moat" is its unbeatable brand.

  1. Powerful mindshare: The first thing that pops into your head when you think of cola is Coca-Cola. Hot summer days, gatherings with friends, movie nights... Coca-Cola is bound to feelings of "happiness" and "refreshment." This psychological connection is incredibly hard and expensive to replicate quickly through advertising.
  2. Simple product, extreme distribution: Its formula is unchanged for a century, production isn't complex, but its brilliance lies in being available in the most remote corners of the planet. This ubiquitous distribution network is itself a deep, unassailable moat.

  Munger values this enduring, hard-to-destroy competitive advantage. Over a century later, the essence of Coca-Cola's business remains largely unchanged, yet it's still the king of beverages.

3. See's Candies – The Small but Beautiful Pricing Power Paragon

This candy company was an important early acquisition for Munger and Buffett. It taught them a crucial lesson: It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

• Why is it a paragon? See's Candies' magic lies in its "pricing power."

  1. Emotional value > Commodity value: Many buy See's Candies as gifts for family or loved ones. On Valentine's Day or Mother's Day, do you care if a box of chocolates costs $20 or $22? Probably not. You're buying the sentiment and the brand assurance.
  2. Brand loyalty: Californians grew up with it; it's become a habit and a fond memory. Even with small annual price increases, loyal customers don't mind because they trust the brand.

  Munger learned the power of pricing power from See's Candies. A company that can consistently and gently raise prices without losing customers has a product that holds a special place in their hearts. That's an excellent business.

4. BYD – Betting on "Brilliant Engineers + Execution"

This is a company Munger strongly advocated for later in life, showcasing his intellectual flexibility – he doesn't just focus on traditional "moats."

• Why is it a paragon? Munger's investment in BYD was largely a bet on its founder, Wang Chuanfu.

  1. Investment in the person: Munger described Wang Chuanfu as a "combination of Thomas Edison and Jack Welch" (GE's legendary CEO). He's both a tech fanatic who solves complex engineering problems and a disciplined, execution-focused manager.
  2. Obsession with vertical integration: While other automakers sourced parts globally, BYD made almost everything itself – batteries, motors, controllers, even chips. This "vertical integration" model seemed "clunky" in peaceful times but showed immense strength during supply chain chaos.

  Munger saw here a powerful momentum driven by top talent and a unique corporate culture. He believed that in certain fast-changing industries, a brilliant leader can be the deepest "moat" itself.

---

To summarize, what do these "paragon" companies have in common?

You see, the companies Munger admires share common "character traits":

• Possess a strong "moat": Either an unbeatable brand like Coca-Cola or a unique business model like Costco.
• Honest and capable management: He places immense importance on people, believing a bad captain can sink even the sturdiest ship.
• Simple, understandable businesses: He invests in things he can grasp. The logic behind cola, candy, and supermarkets is clear.
• A "win-win" wisdom: Especially evident in Costco – it doesn't "extract" profits from customers but succeeds by enabling their success.

Hopefully, this explanation helps you better understand Munger's wisdom. What he values are always the good companies that can steadily create value over the long haul, leveraging their inherent strengths.