Charlie Munger and Warren Buffett on Costco: "It’s easy to talk the game, but living the game is something else."

Costco in 2003: "mature store target is 10% gross margin -- and we want you in a range of 9.5%-10.5% for strategic reasons. Your goal is to get volume as far above the $700/square foot range as possible. An additional $70 (10%) in yearly sales contributes $10 straight to operating income." See discussion of Costco float etc here: http://answers.google.com/answers/threadview?id=290394

CHARLIE MUNGER: Well, GEICO to me is very much like Costco. And one of the reasons it’s succeeded is that they really feel a holy duty to have a wonderful product at a very low price.

A lot of people talk that game, but very few have it just right down under the body and soul of the company. But GEICO does, and companies like that do tend to grind ahead over time.

WARREN BUFFETT: One thing you’ll find about it, I think this is true about Costco, too, it’s certainly true about GEICO, is that people don’t come and go from there as they — I mean, we have practically no one from the rest of the insurance industry that’s come over to GEICO, and they don’t leave us.

I mean, they really have their own idea about how it should be done, what should be done right. And it becomes very, very reinforced. And, of course, it becomes reinforced by success. Is that true at Costco, Charlie?

CHARLIE MUNGER: Oh, Costco’s unbelievable. And it reminds me very much of GEICO, and I’m not surprised that both companies keep taking share.

It’s easy to talk the game, but living the game is something else. I mean, it’s against the human nature of many entrepreneurial people to try and get the price down and the service quality up all the time. I mean, it’s like wearing the ultimate hair shirt and yet it works.

Munger 6 principles of life:

“You don’t have a lot of envy.

“You don’t have a lot of resentment.

“You don’t overspend your income.

“You stay cheerful in spite of your troubles.

“You deal with reliable people.

“And you do what you’re supposed to do.

“And all these simple rules work so well to make your life better. And they’re so trite.”

His prescription is logical, he says.

“Staying cheerful” is “a wise thing to do,” Munger told Quick, adding that in order to do so, you have to let go of negative feelings.

“And can you be cheerful when you’re absolutely mired in deep hatred and resentment? Of course you can’t. So why would you take it on?” Munger said.

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