Outsider, n - someone that doesn't belong to a group or goes against conventional wisdom
The Outsiders by William Thorndike, Jr. (affiliate link) profiles 8 CEOs that strayed from the conventional wisdom of the day which led to truly exceptional returns for shareholders. Running and growing a business is never a straight forward task and the ability to think outside of the box to unlock value is key for CEOs and shareholders alike.
These 8 CEOs all had several things in common. For starters they all believed in a decentralized management. Companies don't need 20 Presidents each with their own Vice Presidents. For the most part the headquarters for all 8 of these companies were no frills places very few employees.
They also placed an emphasis on capital allocation with a focus on simple analytical models. They focused on cash flow rather than earnings or any other metrics because after all cash is king.
These CEOs all were able to zig when others zagged. When other companies in their respective industries were going on acquisition binges these CEOs would shed overvalued assets. If their share price was unjustifiably high they'd raise capital through acquisitions of undervalued assets. Likewise if their share price was low and offered the best and safest return, they knew their companies best right?, they would have no problem buying back shares.
These CEOs can be summed up in 3 key points:
- Flexible Capital Allocation
Meet The Outsiders
- Tom Murphy, Capital Cities Broadcasting
- Henry Singleton, Teledyne
- Bill Anders, General Dynamics
- John Malone, TCI
- Katharine Graham, The Washington Post Company
- Bill Stiritz, Ralston-Purina
- Dick Smith, General Cinema
- Warren Buffett, Berkshire Hathaway
The shareholder returns these CEOs were able to generate were truly phenomenal.
The Outsiders isn't a traditional investment book; however, there's a lot of value within its 220 pages. Dividend growth investors might not appreciate these CEOs since many of them refrained from committing to a dividend but their returns speak for themselves. If anyone is interested in business or investing I highly recommend The Outsiders and have no doubt that it will improve your own analytical process.
I'll leave you with one excerpt that encompasses all of these CEOs.
"Charlie Munger has said that the secret to Berkshire's long term success has been its ability to 'generate funds at 3% and invest them at 13%.'" (p. 178)
What books are you reading?