A few weeks ago, Apple’s market value surpassed $2 trillion, making it the most valuable company in the world. Apple is now worth as much as the entire German stock market. If you split that money between individuals, you could create 2,000 new billionaires tomorrow — or two million millionaires.

Million, billion, trillion, what’s even the difference? Such numbers are hard to process for humans. Maybe, this’ll help: If it takes one million seconds to complete a project, you’ll spend 12 days working on it around the clock (or a month of 8-hour workdays). If it’s a billionseconds, it’ll take 32 years — without sleeping, eating, or taking a break. A trillion? That’s 32,000 years. Going back in time, this is when we’ll find the first cave paintings known to man. From that perspective, Apple has eclipsed all of human history.

The most fascinating lesson from Apple’s journey to $2 trillion, however, may not come from Apple at all. In 1996, long before the tech giant’s meteoric rise, one man thought about how to reach that myth-enshrouded mark. He didn’t use Apple as an example, but since the proverbial one doesn’t fall far from the tree, he moved only two letters over in the alphabet — to Coca Cola.

The man is Charlie Munger, billionaire investor and legendary partner to Warren Buffett. In a talk, he explained how anyone could have started Coca Cola in 1884. In Damn Right!: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger, Janet Lowe included a transcript of his speech.

Using only a few ideas, Munger reverse-engineered how to turn a $2 million investment into an unfathomable $2 trillion market cap 150 years later — a figure the actual Coca Cola company is not unlikely to reach by the target year, 2034, given its previous high of $250 billion.

The point of thought experiments is to form our own, unique understanding of the world. Instead of importing ideas and opinions from other people, they lead to first principles thinking — to a worldview built from scratch which, in turn, will give us a more accurate picture of how the world really works.

Following in the footsteps of this particular experiment, made by one of the world’s best thinkers, will teach us about business, growth, psychology, and life. Here’s Charlie Munger’s $2 trillion masterclass in thinking for yourself.

The 5 Helpful Notions in Business & Life

Charlie first introduces five ideas which guide his thinking. They’re useful in solving all kinds of problems in business and in life.

1. Simplify problems by answering big, “no-brainer” questions first.
2. Use math to cut through the chaos of everyday life. “Without numerical fluency,” Charlie says, “you are like a one-legged man in an ass-kicking contest.”
3. Think things through in reverse. “Many problems can’t be solved forward,” according to Charlie.
4. You only need elementary academic wisdom to solve most problems, but you must think with a multidisciplinary approach. You must look at everything from many angles and do your own thinking, for even experts suffer from many biases. “To a man with a hammer, every problem looks like a nail,” Charlie quotes the ancient proverb.
5. Outlier effects are always the result of many factors coming together. You can’t have an exponential result with just one or two multipliers. You need several, additive effects.

Equipped with these notions, Charlie sets the stage: In 1884, we and 20 others are invited to pitch a rich man from Atlanta, George Glotz, on how we might turn his $2 million investment in a new beverage company into a $2 trillion business 150 years later. The winner will own half the equity.

Neither Glotz nor we know anything that happened after 1884, but we do have the same basic education a 1996 college sophomore would have, and we have 15 minutes to make our case. Let’s get to work!

The Math Behind a $2 Trillion Company

The first big idea Charlie establishes is that we’ll never get to $2 trillion by selling “some generic beverage.” We need a powerful, legally protected brand. Second, the drink must sell all over the world and, therefore, appeal to any human’s taste.

Next, Charlie breaks down the math: Extrapolating population figures, he assumes there will be about 8 billion people in the world in 2034, each of which will have much more purchasing power than an 1884-consumer, but each of which will still need about 64 ounces of water each day. That’s about 23 trillion servings each year. If 25% of all consumed water is soft drinks and Coca Cola owns half the market, we can sell nearly 3 trillion servings in 2034. If we make just $0.04 in profit per serving, that’ll be a whopping $117 billion in earnings — more than enough for a market value of $2 trillion.

Fun fact: Coca Cola’s price-to-earnings ratio has been 46 on average for the past five years. That means at $117 billion in earnings, it would be worth well over $5 trillion today.

Using the fifth helpful notion — outliers are multi-factor results — Charlie then explains why a 4-cent target makes sense: The dollar will decrease in value, real purchasing power will go up, as it does people will spend more on small pleasures, and technology will reduce the cost of manufacturing.

With the mathematical framework in place, we can now tackle the two halves of our $2 trillion challenge: How do we create a lasting, competitive brand — and how can our drink sell like hotcakes but go down like water?

Coca Cola’s Magic Formula, Built on Common Sense

Trying to create — and own half of — a beverage market that can replace one fourth of the world’s water consumption is no small feat. It is a “lollapalooza result,” as Charlie calls it. Therefore, we need a combination of many factors.

Almost all of them, however, will come from basic psychology, as Charlie concludes: The Coca Cola brand and name will, ultimately, be only the stimuli that trigger customers’ purchasing and drinking reactions.

To achieve such an outcome takes strong conditioning, in our case over generations, and there are two kinds of it we can and should employ.

1. Operant Conditioning

In psychology, operant conditioning means rewarding or punishing a behavior so that the subject will perform it more or less often.

When it comes to a drink that sells, ingestion should be maximally rewarding. Simultaneously, those rewards shouldn’t be easy to replace by other beverage providers.

Charlie suggests four reward levers we can adjust for Coca Cola:

1. Nutritional value (calories)
2. Enjoyable flavor, texture, and aroma
3. Stimulation through sugar or caffeine
4. A cooling or warming effect to counteract the environment

Looking for big results, we’ll include all factors, Charlie says. First, we’ll make our drink cold, because there are many ways one can heat up without drinking anything, and even if one has a hot beverage, they need to drink only little. The supply of cold drinks in the summer, however, can be endless.

Second, we’ll add both sugar and caffeine, as coffee and tea have long proven this combination to be successful.

Third, we’ll obsessively optimize flavor through trial and error.

Finally, the easiest way to not let competitors steal our operant conditioning is to be available always and everywhere — if customers never need to try alternatives, they’ll never leave.

2. Pavlovian Conditioning

Unlike operant conditioning, classical conditioning doesn’t merely reinforce or weaken existing behaviors, it creates new triggers based on repetition.

Ivan Pavlov first studied this in 1897. He rang a bell every time he gave dogs food. Initially, the dogs only salivated when they saw the food. Over time, however, they began to associate the bell with food — and started salivating upon hearing the bell, even if no food ended up being presented.

Since Pavlovian conditioning works by association alone, it is extremely powerful — especially when combined with the primal urges all humans share. Charlie suggests the following subtle associations for Coca Cola:

1. An exotic and expensive-sounding name, which, in 1884, is a box “Coca Cola” definitely checks.
2. A color that makes the drink look like wine rather than water.
3. Carbonation — so that people may link it to champagne and other costly, bubbly drinks.
4. A flavor different from all currently existing ones to make it maximally difficult for competitors to copy and not hand them any “this tastes like Meyer’s Lemonade” benefits.

With the product taken care of, let’s look at the brand. If Pavlovian conditioning is all about mental connections, which ones would we like consumers to make when they hear or see the words “Coca Cola?” According to Charlie, any association with whatever else they like and admire!

For example, people like beautiful people, especially of the opposite sex, and so pretty folks drinking Coca Cola will make our drink more desirable. An athlete on a pedestal is a good image for Coca Cola. A happy family in a big house is a good image for Coca Cola. So is a rich businessman in an expensive car, a woman relaxing on a beach, and a group of young kids partying.

To connect these images with our brand in consumers minds in perpetuity will take a lot of advertising. Hence, Charlie wants to commit 40% of every serving’s sale price to marketing and promotion. This, in turn, will give us large advantages when it comes to media buying — advantages our competitors won’t have, especially once we’re all over the globe.

Lastly, employing the concept of “social proof” whenever possible will further compound our Pavlovian effects. People want to be validated by other people, so the more consumers see others drink Coca Cola, the more will want to try it — and the more rewarding it’ll feel when they do. This applies in real life and our advertising, and it’ll ensure that the more we sell, the more we’ll be able to sell in the future.

By combining all these factors, Charlie says we’ll start “something like an autocatalytic reaction in chemistry” — a fire that pours gasoline on itself, if you will. Our sales won’t just grow fast, they’ll keep accelerating!

How can we make sure we’ll deliver on those sales? Good question.

The Logistics of Worldwide Availability

Charlie says there are only two good ways to sell Coca Cola:

1. As a syrup for use in soda fountains and restaurants
2. As a finished retail product in cans and bottles

As usual, we’ll do both. The syrup can be made and shipped from only a handful of plants in one spot, but the bottling should happen all over the world — this way, we’ll pay less for transporting our carbonated beverage.

In order to meet our profit goals, we’ll make those bottlers subcontractors rather than vendors or franchisees. This’ll allow us to always set the initial price of our product, regardless of where we’ll export it.

Of course over time, food chemistry will advance, and others will be able to imitate our flavor, but those advances will also help us with refrigeration, transportation, and similar sweetness with less (or no) sugar. Furthermore, thanks to our excessive secrecy and scaling effects, we’ll be far ahead with our distribution and brand by the time any competitor can catch up to our flavor.

4 Pitfalls To Avoid at All Costs

Only fools never proof their plans, and so, using the third helpful notion — think in reverse — Charlie raises four pitfalls we should avoid at all costs.

1. Eliminate aftertaste. We must work hard to make our beverage one thirsty people never tire of, a problem we’ll solve through trial and error.
2. Protect our trademark. We must not lose even half our precious name. Any “cola” on the market should be one we are behind, not competing against.
3. Make no one jealous. “The best way to avoid envy is to plainly deserve the success we get,” Charlie says. We’ll obsess over quality, presentation, and affordability, so that people will applaud our success rather than begrudge it.
4. Never change our winning formula. Even if we find a better flavor down the line, it won’t be worth giving up our strong standing in consumer’s minds and routines. It will likely only lead to disappointment and opportunity for competitors.

That’s a thorough plan Glotz will surely be impressed by — but how well will it stack up against the real events that ultimately transpired?

The Real Story

The real Coca Cola company was founded in 1892, eight years after our fictional $2 million investment. In 1896, it still had zero earnings.

In its 128-year story to date, it has made many mistakes, including losing the “Cola” part of the trademark, which can now be used freely by anyone making soft drinks, the near-bankrupting “New Coke” disaster in the 80s, and granting bottlers perpetual licensing rights to manufacture and sell the drink.

Despite all this, it followed enough of Charlie’s plan to reach a market-cap high of $250 billion in January 2020, even after paying out millions of dollars in dividends over the years. It’ll take another eightfold increase to reach $2 trillion, but there are 14 years left on the clock. The 16% growth per year it needs are a challenge, but regardless of the final outcome, Charlie’s reverse-engineered 150-year prediction won’t have been far off.

“Well, it’s easy to come up with this plan in hindsight,” you might say, but if you’re honest with yourself, you probably couldn’t have. I know Icouldn’t have and, apparently, that also applies to all of academia until 1996 — for otherwise, someone else would have given this talk before.

Regardless of how much credit you want to give Charlie, there are several lessons to be taken away from this exercise.

The 5 Big Lessons From Charlie Munger’s Experiment

Charlie Munger is among history’s smartest people and among its richest — but at 96 years old, both pale compared to his wisdom. Charlie has lived it. He’s seen empires rise and fall; geniuses excel and crumble.

Yet, he never stopped learning not just from what’s around him but from what’s inside him: Our imagination offers the greatest lessons. “Imagination is more important than knowledge,” Einstein said. “For knowledge is limited to all we now know and understand, while imagination embraces the entire world, and all there ever will be to know and understand.”

When it comes to Charlie’s experiment, these are the lessons I see:

1. Principles beat knowledge. It is much better to have guidelines for how you think than many options of what to think. With a few principles, you can think your way to any problem’s solution. You can solve challenges in real-time instead of collecting knowledge, hoping it’ll one day be useful. It might be, but it’ll never trump the ability to think on your feet.
2. An ounce of common sense is worth a pound of theory.Theory might suggest consumers are complex creatures; that they weigh their decisions carefully and that many factors go into those decisions. In reality, Johnny wants a Coke because the girl on the billboard is hot and damn, he is thirsty. At the end of the day, we all live in the real world. It does no good to insist on even the best theory if it falls apart as soon as you leave your ivory tower. Don’t drown in theory. Use common sense.
3. Psychology governs everything. Over 200 biases rack our brains, every waking second. We are driven by our instincts, our environment, and our peers. Whatever you’re trying to do in the world, whether it’s spreading an idea, building a car, or selling a drink, if you neglect the invisible hand that steers most if not all human behavior, you’ll never achieve what you set out to do. Psychology rules everything. Never underestimate psychology.
4. Despite lots of failure, you can still reach your goals in the end. If your thinking is sound, you understand psychology, and adapt to real-world conditions, you can take a lot of missteps yet still reach the finish line. Coca Cola made not every but many mistakes in the book, some near-fatal, but they always managed to come back because their overall plan was reliable. Failure will always be a large part of the way — maybe the largest — but it’ll rarely block you completely from achieving your goals.
5. Always think for yourself. As Charlie guessed, there are now eight billion people on the planet. That’s eight billion unique perspectives, and not one is better than another. In the words of another world-class thinker, Steve Jobs: “Everything around you that you call life was made up by people that were no smarter than you.” Never let others determine your point of view. Use principles and reason to form your own perspective, and assess each matter on its own. Always think for yourself. No one can do it for you.

Coca Cola, Disney, Apple — today’s giants were built on many different factors, and each has their own unique story. What unites them is that behind their success, there’s a group of people who dared to think for themselves.

According to Charlie, that’s what truly matters: The discipline to keep learning and the courage to let what you learn inform your decisions. As long as you have those, nothing can stop you — not even in 150 years.