👋 CMQ Investors,
This is the 61st edition of Munger Monday. This week’s edition is sent to 8,752 investors that subscribe to CMQ Investing. I was recently featured in a CBS News article about using AI to help you start a business. While I am very bullish about AI’s impact on businesses, it doesn’t guarantee gains for shareholders. That’s what this week’s edition is all about.
📘 Why It Matters: Charlie Munger’s quote is a reminder that new technology does not automatically create a competitive advantage. If every competitor can access the same innovation, the benefits are often competed away through lower prices, leaving customers (not shareholders) as the primary winners.
🌍 Real-World Example: In 1981, Warren Buffett bought new looms to help keep Berkshire Hathaway’s textile mills competitive.
As many domestic and foreign textile producers adopted similar weaving technology, the resulting cost savings became lower prices for customers rather than higher profits for shareholders.
The nation’s largest textile producer, Burlington, generated $1.2 billion in sales and invested roughly $3 billion in plants and equipment between 1964 and 1985 to modernize its mills.
By 1985, Burlington earned lower returns on sales and equity than it had twenty years earlier, demonstrating that even rational investments in better technology cannot overcome poor industry economics.
📅 Apply It This Week: When evaluating future investments, make "Who captures the value?" a standard part of your research. Prioritize businesses where technological improvements strengthen an already durable competitive advantage instead of merely keeping pace with rivals.
📝 Franco’s Notes:
This week’s quote is a reminder to learn the big concepts from microeconomics. They are part of the 100 models Charlie Munger recommends learning.
Charlie Munger put it this way: "Well, there hardly could be anything more important than the microeconomics. That is business. Business and microeconomics is sort of the same term."
Buffett’s 1985 letter goes deeper on the Burlington comparison if you want the full context.
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