{"id":295,"date":"2006-03-15T15:08:04","date_gmt":"2006-03-15T22:08:04","guid":{"rendered":"https:\/\/www.roughtype.com\/wp\/?p=295"},"modified":"2006-03-15T15:08:04","modified_gmt":"2006-03-15T22:08:04","slug":"elementary_worl","status":"publish","type":"post","link":"https:\/\/www.roughtype.com\/?p=295","title":{"rendered":"Elementary worldly wisdom"},"content":{"rendered":"

A couple of days ago, a thoughtful reader (thanks, Omar) pointed me to the text of a terrific speech, “A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business<\/a>,” that was given in 1994 by Charles Munger, Warren Buffet’s second-in-command at Berkshire Hathaway. Munger offers a bracingly clear-headed and plain-spoken lesson on how to think strategically about business and competition. He has great insights into the tricky balance between specialization, scope and scale that seem particularly relevant today, when, as Om Malik recently wrote<\/a>, “everybody is in everybody’s business.”<\/p>\n

But my favorite moment comes when Munger explains why investing in great new technology often leads to economic pain, if not ruin:<\/p>\n

\n

The great lesson in microeconomics is to discriminate between when technology is going to help you and when it’s going to kill you. And most people do not get this straight in their heads. But a fellow like Buffett does.<\/p>\n

For example, when we were in the textile business, which is a terrible commodity business, we were making low-end textiles – which are a real commodity product. And one day, the people came to Warren and said, “They’ve invented a new loom that we think will do twice as much work as our old ones.”<\/p>\n

And Warren said, “Gee, I hope this doesn’t work because if it does, I’m going to close the mill.” And he meant it.<\/p>\n

What was he thinking? He was thinking, “It’s a lousy business. We’re earning substandard returns and keeping it open just to be nice to the elderly workers. But we’re not going to put huge amounts of new capital into a lousy business.”<\/p>\n

And he knew that the huge productivity increases that would come from a better machine introduced into the production of a commodity product would all go to the benefit of the buyers of the textiles. Nothing was going to stick to our ribs as owners.<\/p>\n

That’s such an obvious concept – that there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that’s still going to be lousy. The money still won’t come to you. All of the advantages from great improvements are going to flow through to the customers.<\/p><\/blockquote>\n

Keep that in mind the next time your company’s considering a big investment in information technology. You know you’re going to pay the bill, but who’s going to end up reaping the rewards?<\/p>\n","protected":false},"excerpt":{"rendered":"

A couple of days ago, a thoughtful reader (thanks, Omar) pointed me to the text of a terrific speech, “A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business,” that was given in 1994 by Charles Munger, Warren Buffet’s second-in-command at Berkshire Hathaway. Munger offers a bracingly clear-headed and plain-spoken lesson […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[1],"tags":[],"class_list":["post-295","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"jetpack_publicize_connections":[],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.roughtype.com\/index.php?rest_route=\/wp\/v2\/posts\/295","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.roughtype.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.roughtype.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.roughtype.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.roughtype.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=295"}],"version-history":[{"count":0,"href":"https:\/\/www.roughtype.com\/index.php?rest_route=\/wp\/v2\/posts\/295\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.roughtype.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=295"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.roughtype.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=295"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.roughtype.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=295"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}