On his recent Caltech Webinar, Charles Munger provided some great insights into the lifespan of today’s high-tech companies. His belief is that while these companies will enjoy success for a little time, eventually they will get clobbered. Here’s an excerpt from the webinar:
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Munger: Over the long term the companies of America behave more like biology than they do anything else. In biology all the individuals die and so do all the species. It’s just a question of time, and that’s pretty well what happens in the economy too.
All the things that were really great when I were young have receded enormously. And new things have come up and some of them started to die and that is what the long-term investment climate is, and it does make it very interesting.
Look at what’s died. All the department stores. All the newspapers. U.S Steel. John D Rockefeller’s Standard Oil… It’s just like biology. So they have their little power. They have their little time and then they get clobbered.
Question: So how does one as sort of a witness or sort of in a certain way… one lives longer than the life of some of these companies sort of deal with change right. So you could think about an investment portfolio that you created a point in time will only have validity for a certain amount of time and so how does one learn to deal with change? It’s a question that I always ask my students and I would just… how does somebody who has to take the resources of very large numbers of people deal with change? Any thoughts on that matter?
Munger: Well some people try to get on the cutting edge of change so they’re destroying other people instead of being destroyed themselves. And those are the Google’s and the Apple’s and so forth. Other people like me do some of that joining things like Apple and in some ways we just try and avoid big change that we think is likely to hurt us.
So Berkshire for instance owns the Burlington Northern Railroad. You can hardly think of a more old-fashioned business than a railroad business. But who in hell’s ever going to create another trunk railroad. So it’s a very good asset for us. So… and we made that success not by conquering change but by avoiding it.
Now Burlington Northern itself has been quite clever at adapting technology to their railroad. Imagine the good luck of being able to take an existing railroad and double deck all the trains and raise the heights of the tunnels a little and so forth and all of a sudden you’ve got twice the capacity at very little incremental cost which is what that railroad has done.
Everybody uses new technology but it really helps to have a position that almost can’t be taken away by technology. How else are you going to carry goods from the port of Los Angeles to Chicago except on our railroad!
You can watch the entire interview here:
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Article by The Acquirer’s Multiple
