Portrait of Charlie Munger
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Charlie Munger on Costco

Staunch Costco advocate (strong)

TL;DR

Charlie Munger viewed Costco as an almost perfect business whose model brings immense value to civilization and never sold his shares.

Key Points

  • He served as a director of Costco from 1997 until his passing and was personally never going to sell his shares.

  • Munger praised the business model, noting that paying workers 30% above industry norms still allowed for superior labor profitability compared to rivals like Walmart.

  • He once suggested that an entity with a 30, 40, or 50-year time horizon should buy Costco stock even at the current high price.

Summary

Charlie Munger expressed profound admiration for Costco, frequently calling it one of the best companies in the world and stating he would never sell his shares. He served as a director on the board from 1997 until his passing, becoming the second-largest individual stockholder. Munger believed the company's operational success was due to a unique alignment of incentives, achieving a win-win scenario for members, shareholders, employees, and suppliers. He famously suggested that Costco did more for civilization than the Rockefeller Foundation, contrasting its demonstrable, customer-focused success with suspicious philanthropic endeavors.

His enthusiasm stemmed from an appreciation of Costco's clear-eyed business architecture, which he often analyzed using his mental models, such as the Lollapalooza effect of combined advantageous traits. Munger highlighted Costco's ability to maintain extremely low markups while remaining highly profitable, funding this via membership fees which serve as pure profit and generate negative working capital. While his partner famously admitted selling Berkshire Hathaway's stake was a mistake because he disliked retailing, Munger recognized the durable competitive advantage rooted in the company’s culture of restraint, extreme inventory velocity, and passing savings to the consumer.

Frequently Asked Questions

Charlie Munger held Costco in exceptionally high regard, considering it one of the best businesses globally, and publicly stated he loved everything about it. He believed its operational model did more good for civilization than many foundations. He was a long-serving director and a major individual shareholder.

No, Munger famously pledged that he would never sell a share of his personal holdings in Costco. This commitment contrasted with Berkshire Hathaway's decision to sell its stake, a move Munger's partner later admitted was likely an error. He remained loyal to the company until his death.

He admired its ability to combine low prices with excellent employee treatment by funding operations through membership fees, creating negative working capital. Munger appreciated the disciplined focus on core strengths, such as limited SKU selection and high inventory velocity, which created a durable competitive moat.