Podcast Monday (12/11/2023)
This Week’s Favorites:
Charlie Munger Interviewed by John Collison on Invest Like the Best
On Costco:
Costco requires no working capital. The turnover is so high that they don't have to pay the supplier until they've been paid. Somebody else is financing their inventories. And we could, if we wanted to, lease all the properties. We don't. We own all the ones we can. But basically, you could run Costco with primarily zero capital if you wanted to. Of course, we like a business like that a lot better than ordinary businesses, there aren't many, unfortunately.
I think everybody understands that who go to a modern business school. But they learn the wrong culture. They learn for instance, that if you just pay the suppliers in 90 days and sell in 30 days, then you get all this -- somebody else is furnishing your working capital. So they abuse the supplier, who's a little supplier, because they can get by with it. I don't think those models are safe or good. I think that's a dumb way to treat little suppliers. So I don't believe in that kind of brutality to little suppliers. People who are in the wrong religion, they say we want to reduce the capital. We'll just pay a bunch of little people who we want to trust us and love us and serve us well. We start treating them in a very improper way. That's vastly stupid. That's not smart.
Costco [does it by turning the inventory quickly] because they have fewer stocking units and they're way more efficient.
Costco, it's an amazing culture. The whole damn culture of the place is so subtle and it just marches from triumph to triumph. It was smart to have a small number of stocking units flowing through with enormous speed. It was right to have a membership system. There are three things that Costco didn't want. Didn't want people who stole merchandise. They didn't want the people who used bad checks, and it didn't want people cluttering up his goddamn parking lot without spending a hell of a lot of money in stores. So a membership system, where they accept only a certain kind of a member, all of a sudden now they've got nothing but people who buy a lot per trip. Costco has always had the lowest shrink rate in the world. Tricks the inside too. So the net theft rate at Costco was always below 2/10 of 1%. That's unheard of.
You can't go to Costco just to buy bottle of iodine, just drop in. You got to be a member and then you got to pay enough, so to an ordinary person, they’re not going to pay an extra $100 to buy a bottle of iodine or something. We keep the peach pickers, the little buyers out. Sol Price used to say “A business should be careful in the business it deliberately does without”. Of course, that's straight out of a Munger book. You figure out what you want to avoid. And they want to avoid theft losses, embezzlements, bad checks and cluttering up the parking lot without buying much. And their system caused all those effects at once.
On parenting and happiness
Do I think it is good for people to be quite self-centered below 35 and then get married compared to marrying at 21 or 22 and having a lot of children? No, I think the people who married at 21 or 22 and grew up fast because they had to because they have those young children, in a sense, I think they were a luckier generation than the people who came along with all these different options and who delay marriage into late age and have one or two children.
It's very constructive to help other people and everybody feels pretty good about his own children. To have a lot of responsibility and bear it well, I think helps people. If you take the philoprogenitive people, say, the Mormon church, really still have the big families. If you measured human felicity in some objective way by measuring time spent smiling versus time spent frowning, the Mormons would average out way happier than the general population.
Other quotes:
I have one standard set of advice for all difficulties, suck it in and cope.
Peculiarity by itself is not art.
If you don’t look, you won’t find.
You can learn a whole new profession just punching buttons on the Internet and so forth, so the possibilities of self-education is fairly enormous. Of course, that causes new opportunities for some people, and it causes absolute economic destruction from certain people who get obsoleted.
We get fun doing, doing and understanding. We both like learning something new, preferably something useful that's new. And we both like accomplishing a certain amount and the fact it's difficult and you're still able to do it, of course it's a pleasure.
Not everything in software always wins. So I do not have the feeling -- the venture capitals tend to think everything in software is always going to win. I don't believe that for a minute.
In NetJets, the whole culture, safety is first, customer service is second. And after that, we'll start worrying about the capitalists who own NetJets. And of course, there's enough fanaticism of that kind of a culture. We create a hell of a product for the person who can afford anything. And ours is better than anybody else in the country, and now it's a big business.
But the way we've done it, mostly, is by not having anybody around. They can't be bureaucratic if they're not there. There is nobody in the head office. So we avoided the bureaucracy. We just don't want other people to do it. Nobody else is as extreme as we are in that. It's a huge advantage to us.
And another thing is, we like very trustworthy people. I'd rather have a brief telephone with somebody I trust than I would a 40-page contract prepared by the finest law firm in the world with somebody I don't trust. And so we like to deal with trustworthy people and to be able to count on their oral promises.
Tamara Winter on Making Media
So there are millions of businesses around the world, and they really rely on Stripe to start or scale their businesses. But I think in some ways, the Stripe Press audience is both larger and more nebulous, but they share certain attributes. So in this group of people that we're talking about, you have founders, operators, investors, researchers, students, policymakers and I think, for lack of a better term, tinkerers. And so, it's a very diverse and diffuse group of people, but they share a particular constitution. I'd like to say that their feedback loop between idea and execution is extremely short. They have an idea, and they act on it. They are working in one way or another to advance the frontier of human knowledge and capability. I think the last thing is that they believe that the world is getting better and can get better, but that doesn't happen by accident. So they're extremely high agency. So that's one part of it. That's who we're talking to. And I think it's helpful when thinking about not just Stripe Press but probably any media to think about who they're creating for and who they're not trying to talk to. So we are obsessed with that person.
My biggest career tool was the artist formerly known as Twitter. I grew up in Garland, Texas. I was born in Nigeria, I grew up in Texas, and I went to SMU. So I didn't necessarily have a ton of exposure to people working in technology or in finance or anything like that…And the great thing about Twitter is that at the time it was 18 when I started tweeting so about 10 years ago, you could tweet at Tyler Cowen, and people would tweet back at you. This is insane. There is basically no other tool where you could talk to the people that you admire. And for me, the celebrities were brilliant economist, I was obsessed with. There's no other platform where you could talk to these people. So I have gotten basically every job I've ever had through Twitter…I still think it's an incredible tool to meet people, to find your people. It's a way to turn yourself into a bit of a light house. So it's not always the easiest to go out and get people to take you seriously. We valorize the cold e-mail. And it's not to say don't cold e-mail, do it, but another way to help yourself is to turn yourself into a lighthouse for the people that are interested in the things you're interested in. So for me, that was a really cool way to demonstrate competence.
But the great thing was that Clint Murchison and Tex Schramm had the foresight to say, "Look, we want to set up this organization in such a way that Tex feels that he has total creative freedom. We understand that if we're going to make this into a winning organization, it's not actually going to be a one year play or a two-year play or a three-year play event. But in fact, it's going to be a longer-term play.”
Netflix’s Pat Flemming on the Vergecast Podcast
Netflix data advantage:
Squid Game, very Korean, you can define it as violent as a commentary on society. It's funny at times. It's certainly dark. It's exciting. It's thrilling. It's a game show. It's all these different things packed together, created distinctly for a Korean audience. There was no illusions at the outset that that would necessarily be a huge global hit. But what happens is that starts to play incredibly well in Korea. So we start with an audience that is likely to be quite highly qualified in terms of delivering impressions, recommending Squid Game for that group. And then because Squid Game and other Netflix originals are available globally, we've got dubs and subtitles in often over the 30 languages. So in the case of Squid Game for Brazilian Portuguese and for Latin American Spanish, it started to take off in Latin America. And from there, it's sort of difficult to know the causality because lots of things are happening outside of Netflix. So people started talking about Squid Game. And this became kind of a global thing on social. And then people are searching for Squid Game on Netflix. And that provides us another signal to further change how we're recommending Squid Game. And from there, the fire just continues to burn. And all of a sudden, everywhere you're hearing about Squid Game and you open Netflix and you find it happens to be there. And so that's a pretty good example of how it would work…Our goal is not necessarily to have titles like Squid Game be the one thing everyone is talking about globally. We want to make titles that are authentically local and can potentially find great audiences all around the world. And that's incredible when they do. It's not always the case. In fact, it's more rare than not. But it's super exciting when it does happen.