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#94 Henry Singleton (The Outsiders)
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What I learned from reading The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success by William Thorndike.
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According to Warren Buffett, if you took the top 100 business school graduates and made a composite of their triumphs, their record would not be as good as that of Singleton, who, incidentally, was trained as a scientist, not an mba. Here's a direct quote from Buffett. The failure of business schools to study men like Singleton is a crime. Buffett has also said that Henry Singleton has had the best operating and capital deployment record in American business. Charlie Munger has said Singleton's financial returns were a mile higher than anyone else. Utterly ridiculous. Okay, so I'm starting today's podcast a little different than I normally do. There's not a lot of information written about Henry Singleton, so I just start with some quotes that I found for today's podcast. I've gathered a number of different resources so we can to use as as like a blueprint for us to study Henry Singleton. One of those is a book. It's called the Eight Unconventional CEOs and their radically Rational Blueprint for Success. And it was written by William Thorndike. There's one of those eight is Henry Singleton. And I'm going to quote heavily from that chapter. And then I'm also going to go back to this Forbes article. One thing to know about Henry Singleton is he gave very few. They call him the Sphinx because he wouldn't talk to reporters or anybody else. So he gave very few interviews. But he did give one to Forbes in 1979, and I was able to go back in the archives and find it, and it's called the Singular Henry Singleton. So before I jump into that, I want to tell you why I wanted to study him. So this whole. The series that I've been doing the past few weeks started when I read 54 Years of Warren Buffett's shareholder letters. And in that shareholder letter, he talks about people he admires. And so, just as a. Like a basic operating, like a basic MO for this podcast is, if somebody I admire mentions people they admire, then I think it's like that's automatically tell me, hey, let me go study this person, too. And now that I've done about a week's worth of research on Henry, I'm so happy that I did that. I'm gonna have a hard time hiding my biases and my excitement today because I'm in love with the way this guy thought and. And acted and his insights, his counterintuitive insights on business. So without any further ado, let me go ahead and jump into. First, I'm gonna start with what comes at the very end of this chapter in the Outsiders on William that William wrote on Singleton. And it's called Buffett and Singleton Separated at Birth. And it's interesting. Cause once I got the whole time I'm reading the chapter, I'm like, oh, my God, that sounds like Buffett. Oh, my God, that sounds like Buffett. Wait, who said that Singleton said that? Because that could have been Buffett. It was very, very obvious. After you read Warren Buffett's shareholder letters or just study them in general, I'm reminded of something I accidentally discovered when I started studying Steve Jobs. I've read, like, I don't know, three or four biographies on them. And a lot of the ideas that I admired that Steve Jobs said in turn, I realized they weren't actually originated from him. They came from, in large part, to Edwin Land and also Bob Noyce. So Edwin Land's founder, Polaroid, Bob Noyce, the founder, one of the co founders of intel, and then the founders of hp. So this is why. This is why the author here is saying, you know, where they separated at birth. What's going on here? And what I realized is that just as we were trying to study and learn from Warren Buffet, Warren Buffett studied and learned from Henry Singleton. And the reason I bring that up is because that, like, I think it's fundamentally a good idea to learn from entrepreneurs to come before you. And that's why the podcast is structured as is. But it's good, like, when other people identify with that through their actions, like, that's an idea I think is exactly true. Right. But it's. It's even more confirming that I'm on the right path with what I'm doing when you realize that Buffett's doing it, too. Jobs did it, Bezos did it, Elon Musk did it. Henry Ford did it. All these other people realized, hey, what I'm doing is really hard. Creating a. Building a successful business is unbelievably difficult. There's some benefit to going back and seeing what other people have figured out through decades of trying to do the same thing. So, okay, I've been rambling. It just. I'm really excited. So it's going to be hard for me to contain myself today as I was reading. So let me just tell you a little example about this. I was reading this 1979 Forbes article, and I was like, I'm by myself and I'm yelling in excitement. And I was like, why am I sweating? And I checked my heart rate. My heart rate was in the 80s. I wasn't doing anything. I was sitting down and reading. So that, that I'm just telling you that up front because this is going to be a, like I'm not gonna be able to hide, hide my admiration for this person. So let me get back to the matter at hand. I don't want to waste any of your time. Okay. So Buffett and Singleton separated at birth. He says many of the distinctive tenets of Warren Buffett's unique approach to managing Berkshire Hathaway were first employed by Singleton at Teledyne. So Teledyne's the conglomerate that Singleton founded and ran. In fact, Singleton can be seen as a sort of proto Buffett. And there are uncanny similarities between these two. So I'm going to go through a list. He's got these bullet points here. Both Buffett and Singleton designed organizations that allowed them to focus on capital allocation, not operations. Both viewed themselves primarily as investors, not managers. Both ran highly decentralized organizations with very few employees at corporate and few if any intervening layers between operating companies and top management. Both made all major capital allocation decisions for their companies. Both Buffett and Singleton focused their investments in industries they knew well and were comfortable with. Concentrated portfolios of public securities. I'm going to talk a lot about that today. I'm probably going to repeat myself multiple times because the sources draw from make they arrive at similar conclusions. Neither offered quarterly guidance to analysts or attended conferences. Both provided informative annual reports with detailed business unit information. Teledyne alone among conglomerates didn't pay a dividend for its first 26 years. Berkshire has never paid a dividend. Teledyne was the highest price issue, the highest price stock on the, on the New York Stock Exchange for much of the 1970s and 1980s. Buffett has never split Berkshire's A class shares. Both Singleton and Buffett recognized the potential to invest insurance company float to create shareholder value. And for both companies, insurance was the largest and most important business. This is what I mean. Like, there's so many similarities, I'm not even done yet where I feel like there's these blueprints to how to run a successful business that are buried in the past that we just ignore. We focus on like what are entrepreneurs doing today? What are people building doing businesses today and not realizing that there's treasure in the past. We just have to go out and find it. Then the last comparison in this is this restaurant analogy that was created by this guy named Phil Fisher, who I guess is a famous investor. I don't actually know who he is. So it says Phil Fisher once compared companies to restaurants over time. Through a combination of policies and decisions analogous to cuisine, prices and ambiance, they self select for a certain clientele. By this standard, both Buffett and Singleton intentionally ran highly unusual restaurants that over time attracted like minded long term oriented customers and shareholders. Okay, so I'm gonna put down the book Outsiders from now I'm gonna come back to it, but I gotta go to this 1979's Forbes article, which is just amazing. So let me pull it up cause I have a bunch of highlights and it's one of those things. So it's very hard to find online. I actually had to sign up for this service called Scribd. And what I'm working off is like a PDF. Somebody photocopied the physical article from 1979 and then I downloaded the PDF and then I highlighted it. So that's what I'm working on. So I'm going to just run through. I highlighted a lot, a lot of this. So the name of the article is the singular Henry Singleton. And let me just jump into it. So it says, talking about Singleton, why is he noteworthy? He says he's noteworthy. He's noteworthy in two respects. For the size and quality of the company Teledyne incident that he built from scratch and for his almost arrogant scorn for most conventional business practices. I hope you don't get annoyed with me, but who does that sound like? I'm going to say this a lot. That sounds exactly like Buffett. He dedicates a lot of his time in his shareholder letters to specifically attack conventional business wisdom, which he thinks is not wisdom at all. And if you watch on YouTube and you can go through the notebook since you have access to it. If you're listening to this as a misfit episode, go through my notebook. It's in the show notes and you just type in Buffett. I've taken a lot of notes on Charlie Munger and Buffett's videos. People chop them up like when they give Q and A sessions at their annual meeting. And this is a reoccurring theme too. They're very. They have scorn for most conventional business practices. They think that people are being brainwashed to perform poorly. It says. Let me jump back into our article. Henry Singleton has always marched to his own drummer and to a music that most of his peers could not even hear. What really distinguishes Teledyne is that is that during a period when inflation has been eroding most corporate profit margins. Remember, this is written in the 70s, a period when corporations have been selling more and enjoying less. That's what happens with inflation, right? Telenine's profitability has been growing, not shrinking. Its return on Equity was nearly 33% last year. Has Teledyne had setbacks? Indeed it has. Any business is going to, of course, right? There's no such thing as a perfect business, just like there's no such thing as a perfect person. Indeed it has. But look at how it has pulled. It's pulled out of them. Remember, it's a. Keep in mind, Teledyne is a conglomerate, just very similar to Berkshire Hathaway. Owns a bunch of weird unrelated businesses. This is an example of setback and then how they pull out of them. Its Packard Bell division couldn't make it in home TV sets, so it quit the market. By emphasizing the profitable remainder, Packard Bell is larger and more profitable than ever today. So the article is also going to talk about, like most of conventional business wisdom is, we fetishize growth and in many cases, Singleton doesn't care about that. He shrinks his company to make it more profitable and as a result makes it more valuable over time. Which again, does not seem obvious, but it's weird that it's not. Like, it's not the conventional wisdom. But if you just sit down and think about it like it makes perfect sense. Like, of course, if you're more profitable, the company over the long term is gonna be more valuable. So why are we just focusing on overall revenue if that revenue's like, he's an evangelist for cash flows? Very similar to, I guess you would say, not only Munger and Buffett, but also Bezos. So let me just jump back into the article. I don't know where I was going with that thought, but I just think it, to me, once you read it, it's like, yeah, of course that's what we should be doing. Then why, like, when we pay attention to, quote, unquote, like, business news? If you're watching cable television or reading these newspapers or you're looking at these periodicals in magazines, it's like they're fetishizing the wrong thing. Like, cash is king. All right, so it says, so it's larger and more profitable than ever today. Who is this business genius Henry Singleton, who turns setbacks into successes, who rarely appears at the business roundtable or rub shoulders with his corporate peers? How does he do it? Can he keep it up? So I'm gonna touch on this point over and over again, but I'm gonna trample over my own point because I think it's so Important for you to understand at the very beginning. One of the things I most admire about Henry Singleton is one, you have to work really hard. Eventually, everybody, if you're gonna do anything, if you're any kind of risk taker, period, whether you're an entrepreneur, an investor, a freelancer, an executive, it doesn't matter. You can be a sports player, whatever your craft is. Like, you've got to get to the point where you can trust your own judgment. But there's something like, fatally flawed about our species where we're not born. No one's born with good judgment. Like, you have to work hard to. It's like it's developing a skill, and there's all different ways to develop that skill. But eventually, the end goal is like, I've got to be able to trust my own judgment. So right now, take an inventory of yourself. Like, okay, I have made some bad decisions here. Or maybe it was irrational in this case, like, how do I correct this? So I get to the point where I am. I can have full faith in my judgment. Like Buffett does, like Munger does, like most. Like Henry Ford did, like Jeff Bezos does, like all these other people that we've studied do, like Henry Singleton does. And what I love about him is that he. He got to that once he got to the point where he knew, and he had an entire lifetime before he became a founder. He was a founder in his mid-40s, right? But once he got to the point where he could trust his own judgment, he ignored everything else. Everything. And I think that is a superpower. All right? So he says. So he doesn't go to conferences. He doesn't rub shoulders with corporate peers. He basically ignores everybody else. He just gives himself time to think. How does he do it? Can he keep it up? First, the who. So now we're gonna give a little bit of background of his life. He says he spent three years at Annapolis, then he switched to Massachusetts to mit, where he earned his bachelor's, master's, and doctorate of science, all in electrical engineering. Educated as a scientist, not a businessman, he. He did not leap into entrepreneurship, but trained for it over several decades. That's what I mean about doing the work, putting in the work to get to the point where you can trust your own judgment. But trained for it over several decades at the best schools of practical management in the US first as a scientist at General Electric, then as management in management at Hughes Aircraft, and then in the early days at Lytton industries, not until 1960, when he was 43. Did Singleton found Teledyne? He did so in the company with two of the best brains of modern business world. So it's George Kozymeski, who's now the dean of the College of Business Administration at University of Texas, and Arthur rock, perhaps the U.S. the most imaginative venture capitalist, one of the early investors in Apple. Okay. Maybe because of his unusual background, Singleton has had an almost uncanny ability to resist being caught up in the fads and fallacies of the moment. Like most great innovators, Henry Singleton is supremely indifferent to criticism. During the early 70s, when investors and brokers alike lost their original enthusiasm and deserted Teledyne, Singleton had Teledyne buy up its own stock. As each tender offer was oversubscribed by investors of little faith, Singleton took every share they offered. So that was one of the unique strategies he employed that other people weren't really doing at the time. One at the time, at the time he's doing this, people looked at share buybacks as weakness. But if they did do it, they'd do it on the open market. He did it differently. He offered tenders. So he took every share and they were always oversubscribed. Like I just said, single took every. Okay. When Wall street, indeed even his own, when Wall street and even his own directors urged him to ease up, he kept right on buying. So again, he could have faith in his judgment and he's just going to ignore it. He has faith in his ability to figure it out. And if he was, Charlie Munger said something. He said Singleton was one of the very few people that was 100% rational all the time. And so what is Charlie saying there? Like that's not common for our species, that's not in our nature to be rational. I've said we're not rational beings, we're rationalizing. And those are very different characteristics. Alright. Shareholders who tendered happily at $14 or 40, which is some of the prices he paid, watched in dismay as only a few years later the shares soared to $130. Henry Singleton had been right. The rest of the world, including some of his own directors, had been wrong. Now we're going to get a quote from him. I don't believe all this nonsense about market timing. Just buy very good value and when the market is ready, the value will be recognized. When investors disillusioned with growth again began. Okay, so some of, some of this article is cut off. So I'm missing a few words here because like I said, it's a photocopy, but it says when investors disillusioned with growth, again, began to be dividend conscious. I think that's the sentence. Teledyne continued to refuse to pay a cash dividend, but there were other rewards for investors. And later in the article, he's going to tell why he refused to do this, which is just very common sense, which when you hear it. So he's not going to give you a dividend. But what are the other like, what are the benefits to the investors? During the years from 1969 to 1978, net profits rose 315%. But look at earnings per share. They soared 1,226% in less than a decade. Oh, boy. All right, skipping ahead. So far we've not even mentioned what Teledyne makes or sells. That's because what Teledyne makes or sells is less important than the style of the man who runs it. The fact is that Singleton unashamedly runs a conglomerate. So Thorndike in his book talks about that. A good way to think about conglomerates in the 1960s was like the Internet stocks of their day. But just like the Internet stocks were highly fashionable and then they went out of fashion and, and then maybe came back in. This is what's happening now. Like Teledyne's oh, great, everybody's going to conglomerates now. They're kind of like they're saying, oh, we don't want it. Once there was like a drop in the share prices of like conglomerates in general, most people said, okay, this is a sign that they're no good since the price went down, since everybody else is saying it's not worth it, then they must be right. It's basically what I'm saying here. All right. The fact is that Singleton unashamedly runs a conglomerate. Right? What are the products and services upon which Singleton has put his stamp? Now he's gonna. They're listen. Offshore drilling units, auto parts, specialty metals, machine tools, electronic components, engines, high fidelity speakers, unmanned aircraft and water pick home appliances, which I think is like a way to clean like floss your teeth or something. So again, I just think go look at if you listen to my podcast and hopefully did on the shareholders like goes into detail the businesses that Berkshire owns or invests in. Like, they don't seem to be related. So it's like what does a candy company have to do with a mobile home manufacturer or an insurance company or anything else? And so this is where we're seeing another echo of Buffet. It's like it doesn't matter. I'm just tell it or Teledime Singleton just told us. He's like, I'm just trying to buy good value wherever it is. This diffuse company is actually quite tightly run. Its board of directors consists of only six people, not the usually dozens or more. And so one of those. I just want to, I'm skipping over this part, but I want you to know that not only is Arthur Rock on the board of directors, but Claude Shannon, who I've talked about two podcasts ago. And next week I'm going to read his biography. So it's called A Mind at Place and I think you're going to really enjoy that one too. All right, now it says taking a leaf from Harold Jeanine's book. Teledyne has super tight financial control. So once I got there and made that highlight, I was like, okay, I need to find out who this Harold Jeanine guy is. So I'm gonna quote from his Wikipedia page real quick. He's best well known as being the CEO and president of ITT Corporation. And let me just read this one sentence from here. Let's see. Yeah, he was the CEO of itt, which is International Telephone and Telegraph Corporation. He grew the company from a medium sized business with $765 million in sales in 1961 and nine years later into an international conglomerate with 17 billion in sales. Bananas. Right? All right, back to the article. So taking a leaf, meaning learning from Harold Jeanine's book. Teledyne has super tight financial controls. Taking a leaf, the words, learning from 3M's corporate books. It breaks up. This is. Oh I love this. I love this part. It breaks up huge businesses into a cornucopia of small profit sets, centers. 129. Intellidyne's case, the largest of Teledyne's 129 companies, TDY Continental Motors is under $300 million in annual sales. Now Singleton, I'm going to stay on this point here. Right. I just got to tell you something. Singleton hires, he buys this guy's company, Roberts and he, he hires him to run Teledyne, the operations part of Teledyne, like making sure that all 129 companies are like doing what they need to be doing, but so single take focus on capital allocation, which again sounds a lot like Buffett. Right. So I'm going to quote from Roberts because it's going to give us an insight of, to like how is the company run? He says we go to an extreme in splitting businesses up so we can see problems which would be passed over in companies where the units are larger, says Roberts. By our plan, no one business all by itself will become momentous. This means now. Why are they doing this? Because things change with scale. So a large company, a large corporation is not the same thing as just a big or small business. Just like a village and New York City and a village is not the same thing. They're two fundamentally different things. And with size, you have a tendency to increase in fragility. So how do you de risk what you're doing? Well, Instead of having one giant company, you have 129 small ones. And, and listen, it doesn't matter. Like, my personal opinion on what I think is like, what I would like to see, like, businesses do. But you can pretty much read between the lines if you listen to my podcast and like I'll just explicitly state it here. Like, I'm not a fan of super large, inhuman, faceless corporations. I want to see a lot, like entrepreneurship's at like a 40 year low, right. At least in the country. I live in America, right. And like, that's distressing to me. I want to see millions of smaller, highly profitable businesses making weird, high quality products as opposed to like, you know, just five or six huge companies reaping all the benefit and kind of destroying the, like, entrepreneurs like along the way. Now, some people could disagree with me. I'm sure there's people listening to this podcast that their goals, like, I want to make the next Amazon, that you have to do whatever, however you are. I'm just saying, like, that's not. I have no interest in that. And I love to see people taking unconventional weights like Teledyne's still extremely profitable. If you were an investor in Teledyne or you ran it, you'd be unbelievably wealthy. You might not have $40 billion, but no one can spend that much money anyways. So I just love seeing like this. And this is why I got so excited. And I think my heart rate was going through the roof when I was just reading this. Cause I wanted to scream. All right, so I just love this idea because it just makes so much sense to me if you just stick, stop and think about it. And you know this, you just look at the, look at the large public companies. Now the survival rate in The S&P 500 used to be something like what, like 50 years? Now it's down like around 10. So of course larger corporations are becoming more fragile. That's why if you've listened to my podcast that I've done for at this time recordings, I have seven Hidden Episodes. If you've left a review and send it to me@foundnersreviewmail.com or if you've recommended my podcast on Overcast by pressing the star and you've emailed that to me, I've sent you back the link. And you probably know this, but I read this one book that I think is fundamentally right on what's taking place now. It's called Unscaled, and it talks about, like, the economies of scale in, let's say, the industrial age. Up until maybe recently, size was, for the most part, yeah, it was a huge advantage. I mean, read Henry Ford's autobiography. He's talking about, like, you gotta get big, you gotta get big. It made sense in his time. And what that book is talking about is like, well, now we. Because of the leverage that technology gives the individual or small team or small group of people, like, the optimal size of companies is shrinking. And that's what I like. I would love to see smaller, as far as headcount, profitable companies doing great things. And I think, just like nature, where we have this diversification through evolution, like, nature abhors monopolies. You don't see that. You see a bunch of different experiments, the mechanism of trial and error. And as a result, you get all these weird things that are unpredictable, that benefit the ecosystem as a whole. So that's the best way to describe what I would love to see. Something I'm going to take on a tangent here. I wasn't going to talk about this, but I was listening to this Q and A from one of an entrepreneur that I really respect. It's the founder of Shopify. His name's Toby. I don't know how to pronounce his last name, and I'm gonna try. But he says something interesting. They're like, a lot of people like, Shopify's share price right now is going through the roof because people think it might be the next Amazon. He's like, well, Amazon's like a conglomerate. Like, they're huge. He's like, I'm not. He used the. I wish I had the quote in front of me. But he basically said, Amazon's trying to build, like, an empire. He's like, I'm trying to arm the rebels. And like, that almost gave me goosebumps. I was like, yes, that's what we need. If you listen to Toby and you can go again, go through my notes, just type in Toby. And I've taken notes on three or four of his talks. And he talks to us all the time. He's like the goal of Shopify is not just people think oh I'm just making software to make an online store. He's like no, no, I'm trying to increase the rate the amount of entrepreneurs there are in the world. And I think there's very few goals like you could have as far as like empowering people to take responsibility for how they make money and to give them the freedom to work on what they. Wow, that was a tangent and now I hope that makes sense. I wasn't expecting to talk about it. Okay, so he says this means the survivability of the entire company will never be jeopardized by failure of one single operation. Another way to think about this is very, very similar to how Ed Thorpe thinks how Warren Buffett and Charlie Munger think. The fact is like they don't take tail risks and a lot of their thinking is, has to do with like the Kelly Criterion. This is an example of that. Like they're not going to jeopardize, they're not going to ever do anything that's going to risk, that's going to ever give them a chance of risk of ruin. Now some people use different terms for that. Warren Buffett uses the term margin of safety. It's just saying hey, I'll have and I've sometimes there's been different numbers I think but it's point he says like you know, he wants like a 25 billion dollar buffet or 40 buffer rather Buffett or $40 billion buff buffer. And just saying hey, as long as I'm here this company's gonna have no risk of going to zero. And I think for risk takers for entrepreneurs like that's your rule number one. If you want to be successful you have to, the first thing you have to do is make sure that you survive. And so that's to me what my reading of what the strategy that Singleton and Roberts are taking with Teledyne is like they're increasing the chance that they're going to survive. Okay, so what matters is this. So far in 1979 all 129 are profitable for the last two years. It's a lot easier to make a small profitable business than it is to make a large profitable business. For the last two years only one semiconductors was in the red and that was just by a few million dollars. Alright, so it talks about like they not only do they, they not waste money, but they don't waste time. And you know, the whole thing is those things are related nor does he waste time and energy in airports and limousines. The heads of the 129 companies take turns coming to him and Singleton their modern office in la. So now they're talking about. Forget products, Roberts begins. Here's the key. We create an attitude toward having high margins in our system. A company can grow rapidly and its manager be rewarded richly for that growth if he has high margins. If he has low margins, it's hard to get capital from Henry and me. So our people look and understand. Having high margins give gets to be the thing to do. No one likes to have trouble getting new money. Roberts is saying nothing exceptional. What is exceptional is the way Teledyne practices what it preaches. There are very few companies of any size and certainly none of the billion dollar class that are as tight with a capital dollar as Teledyne. In other words, what have entrepreneurs in the past have advised us? Watch your costs. Do not be resourceful. Don't waste money or time. This year, its capital spending will exceed $100 million for the second straight year. But this is rather miserly sum in relation to Teledyne's cash flow of more than $300 million. Texas Instruments. Companies of equal size and technological orientation will spend more than three times as much. Many companies normally spend more for capital projects than they take in as cash. Not so with Teledyne. This is the real secret to Teledyne's ability to grow. The key then is discipline. No ego trips, only new investments that will quickly pay off in the forms of enhanced cash flow. This is a quote from George Roberts. Again, the only way you can make money in some businesses is by not entering them. Now we're going to get into risk, which I was just kind of talking about earlier. Risk two is carefully rationed. A coolly rational man, Singleton despises surprises. It is a company policy that divisions which are defense contractors remain relatively small. Why? Because large increases your fragility. We don't want any big prime contracts, says Roberts. We prefer to be important, technically oriented subcontractors who serve those who want to be prime contractors. Now, why would you do that? Like, why would you purposely limit the revenue from any one source? That way if a large contract is aborted or we will not be hurt. So it's like a mirror image of how their entire company is structured, right? It's not one big company. It's 129 small ones. Now we're going to get some quotes from Singleton. Our attitude towards cash generation and asset management came out of our own thought process, says Singleton. It is not copied. After we acquire a number of businesses. We reflected on aspects of business. Our own conclusion was that the key was cash flow. Singleton may be a scientist and an intellectual, but he has an old fashioned respect for cash. You can't pay bills with bookkeeping profits. He knows that companies have gone broke after reporting big profits for years and they give some examples. I'll skip over that. He wants to see the color of some of that money in his company's reports. He wants each company to throw off cash over and above its reinvestment needs. Cash that can never be utilized for corporate. For overall. I need to start that over again. Cash that can be, that can be. I said cannot be. I'm sorry for that mistake. Cash that can be utilized for overall corporate purposes. So this is very similar to Munger who says, hey, you know that business that generates 14% a year for the owners and you can actually deduct the cash out of the business? We like that. The ones where it says, hey, see all that equipment over there? There's my profit. We hate businesses like that. Singleton saying the same exact thing here. This kind of real hard cash flow enabled Singleton to buy up his company stock when it was lying on the bargain counter. It has enabled Teledyne to reduce debt to the point where it amounts to only about 22% of total capital against as against 32 and 52% for fellow conglomerates like ITT and Gulf and Weston. Of course, every management wants or says it wants a high return on its capital. Henry Singleton wants something more, a cash return. Singleton won't pay cash dividend to his own shareholders. I'll talk about why he changes his mind on this later. But he expects them from his. From all of his company presidents, all 129 of them over the long run. This quote from Roberts. Now, net income without cash is not necessarily net income. We build cash generation into the system of paying our managers. Bonuses can be 100% of base salary. If it is curious that a man who started as a scientist and became an operating man should finally make his greatest mark of all in finance, Singleton has nevertheless done just that. American business is still gripped with a mania for bigness. Isn't that funny? These words are written in 1979. Somebody do the math for me. So what? 40 years ago. I can do the math myself on that. Well, like that's still exactly true today. American business is still gripped with the mania of bigness. Companies whose stock sell for five times earning will think nothing of going out and paying 10 to 15 times earnings for a Nice big acquisition when they could tender for their own stock at half the price. Who does that sound like? I hope. Like this. Come on, we already know this. This is. They're clearly fundamental principles. If you see it being deployed successfully 50 years ago by Singleton and then even in the last, like 25 years by Buffett, like, okay, okay, so it says instead of going out and paying. If you're. Instead of going out paying 10 to 15 times earning for a nice big acquisition. And there's some, there's some theories. Buffett has some theories on why people do this. He says, like, people are lemming. Like, they like to copy. They like to get themselves. Even if it's not good financial result for the company, it'll be celebrated by the press. And they like that kind of prestige. But that's not what you're supposed to be optimizing for, right? So why are you doing that instead? You could be tendering for your own stock at half the price. And what is the result of that? You'd be shrinking. Right, but he just got done telling you why are people not. They're not going to shrink because all the incentives for all the external plat. Like, is it platitudes is. The word I'm looking for is for bigness. Singleton didn't care about that. He didn't care what other people thought. I don't care if I'm going to be written up. I'm not going to go to your stupid conference. I'm not going to go and sit down for your interview anyways. I'm going to be focused my time on creating the most value for the company I founded. Just a shrinking. A la Teledyne still isn't done, except by a handful of shrewd entrepreneurial companies. All right, still in this. I still have a few pages to go in this article. I highlighted, like, I don't even know how much, maybe 50% of this thing. More recently, Singleton has been turning his hand to the stock market. He was thrust into the role of portfolio manager quite by accident. It might never have happened, he says, if Teledyne's Argonaut insurance subsidiary had not gotten into serious trouble writing Medical malpractice insurance. In 1974, Singleton converted all of his insurance portfolios into liquid cash to be ready for disaster. Just got a margin of safety there. That disaster never came. So the job of reinvesting faced him, and he decided to be innovative and daring in his approach. There too, no investing fads. For him, the idea of indexing isn't Something I believe in or would follow, he says with scorn. And again, if you don't know how to value businesses, then of course you want to index for the market. Right? That's what I mean. You're getting the same return as the market. But for people like Singleton, people like Thorpe, people that don't really like, people like Buffett, that feel they have a, some kind of talent, like, no, why would I do that? I don't want your, your return when I can triple or quadruple that return. In choosing stocks, he rejected Wall Street's dogma and relied on his own experience. Singleton decided to buy those he felt were well run and undervalued. That and that that analysts were shunning other conglomerates as they shunned Teledyne only made it easier, easier for him to get a good price. Singleton's biggest move was to put over 130 million 25% of his entire portfolio into Litton. This is Litton Industries again. That goes back. If you search the notes that you have access to, remember you have lifetime access as part of your benefits for being misfit. Please use it. I think it's a great resource. I wouldn't waste hours and hours and years of my life compiling them if I didn't believe that. But just search Charlie Munger, Diversification. Warren Buffett, diversification. You'll see that they think diversification is nonsense. Singleton is saying. He's not saying that, but in words. He's saying that in actions. I'm going to put 130 million 25% of everything I have, one fourth of everything I have into one company. What's the results at this point? Now the holdings are worth $270 million. Now we have some other guy of another company talking about Singleton. He says that was a fabulous 140 million dollar gain. But when Henry first put all that in one stock, I thought he'd gone crazy. And then Singleton's just like, this is not complicated. I felt Litten was a sound investment. It's good to buy a large company with fine businesses when the price is beaten down over worry about one problem. So he's referring the fact that at the time he's doing this, Linton was going through a costly and protracted shipbuilding fracas with the US Navy. So how did Singleton like, why is everybody else scared? Right. Everybody's all scared because we know by their actions the stock price is going, which means there's more sellers and buyers. Right? Right. And he says, he adds, Lyn's problem was Not a general one, but an isolated problem, as ours was with Argonaut Insurance. To me, this is what I mean about being supremely rational. Listen what he's saying here. To me, it is hard to believe that heads of a three or four billion dollars business would not be able to handle one business problem. Currently, Singleton has over 50% of his equity portfolio in conglomerates. So he's still a big fan right now, everybody else, investors like, no, we don't like this. He's like, oh, I think they're fantastic. Oh, you don't like them? Good. I'm just gonna be able to buy them for cheaper. Thank you. Singleton has long since put to rest the speculation that he was accumulating shares to go for control of Litton and the other companies whose stocks he was buying. Now, this is gonna be. This is. I know for a fact. Oh, I shouldn't say I know for a fact. I'm almost as sure as anybody could be that Warren Buffett has also read this article. As much as that guy reads, and as much as he talks about how he admires Hillary Singleton, the idea that he's never read the article I'm reading to now is, I don't believe that at all. And you're going to see, because there's a lot of these ideas like Buffett does. Years later, he tells readings made him rich. That's a direct quote from Warren Buffett. He's like, I read everything, read books, read 10Ks. Reading has made me rich. Okay? So he says, people saying, hey, you're buying a ball. You want to control. And he's like, people. Now, here's the problem though, right? They're saying you want to control because they're thinking like conventional people think. But if you think conventionally, you're not going to understand a misfit like Singleton. It doesn't even compute to you. People who speculated that way were making conventional judgments. That's the way most conglomerators work. But buy enough stock to get a good look at the books and a feel for the situation, then go for the control via tender offer. But Singleton isn't like most conglomerators. Listen to his reasoning on the subject of tenders. This quote is from Singleton. Now, in this climate where tender offers mean overpaying by managements which want to grow at any price, I prefer to buy pieces of other companies. That's direct that Warren talks about that constantly in his shareholder letters. You can get better prices buying pieces on the open market than you can for acquisitions. Let me Finish this. Because this quote from Singleton Buffett comes to the same conclusion. So he says, I prefer to buy pieces of other companies or our own stock or expand from within the price. Why? This is my main point. Or not my main point. His main point, Buffett's main point. The price for buying an entire company is too much. It's too much. You're paying a premium for no reason. Why would you do that? Tendering at the premiums required today would hurt, not help our return on equity. So we don't do it. Where many businesses say that it is. Where many businesses say that it's cheaper, even at big premiums of the market price, to buy rather than to build. Singleton is saying, why pay 10 times earning in a tender for a company when I can buy pieces of companies for 6 times earnings and my own stock for 5 times earnings? Rigid logic, that. But not the fashionable view. And that's the point of studying these people. They've learned things through their experience that you are not going to learn in any school. It's impossible. No one can teach you entrepreneurship. All you can hope to do is take these ideas which I consider tools, put them in a tool belt. You might use that idea five years from now, ten years from now. You have no idea when you use it. But that's what I'm talking about. Like, wouldn't you rather be like, as far as. If you want to, you want to. Assuming you're listening to this because you want to do better at work, right? And hopefully build a better business. Like, what's going to help you build a better business? Thinking about in the terms that Singleton is. Are following fashionable view. Who cares about fashionable view? Singleton certainly didn't liquid as Teledyne is. Why does Henry Singleton still flatly refuse to disperse cash to his own stockholders except in exchange for their shares? I love that part. And this is what I meant earlier when I mentioned, like, when we get to the point why he doesn't pay a dividend. I'm gonna read this paragraph from you. I can't find any, like, any, any. Like. I can't pick on any of his logic here. I, I just can't. He says. To begin with, he asks, what would the stockholder do with the money? Spend it. Teledyne is not an income stock. Would they reinvest it? Since Teledyne earns 33% on equity, he argues he can reinvest it better for them than they could for themselves. Besides, the profits have already been taxed, paid out as dividends. They get taxed a second time. Why would I subject my stockholders money to double taxation? One thing. Now I'm skipping ahead. One thing that puts people off about Henry Singleton, that has hurt his stock on Wall street is his Delphic way of talking with outsiders. He can be charming when he wants to be, but he. But wait. He can be charming when he wants to be so, but charmingly vague. He speaks in general terms, leaving the questioner to fill in the vital details. For example, I believe in maximum flexibility. So I can reserve the right to change my position on any subject when the external environment relating to any topic changes too. How do you know? What's a sign of a rational person is the fact that, like, they don't. They're not overly focused on like, ideology, like Munger has told us. Like, if you lean too heavy into ideology and think that you are, there's no separation between your ideas and the person you are. Like, it's going to turn your brain into cabbage. Singleton is telling us, like, listen, I'm going to be flexible. When the environment outside of me changes, then I'm going to adapt to that. Why would I just have this rigid form and be and think that the world needs to adapt to me? The world doesn't care about me. So he says this is actually the back to the article. This isn't a quote from him. He says Teledyne functions as a powerful compound income machine. Money invested and reinvested at a 30% return doubles itself in less than three years. And Teledyne is earning well over 30%. I'm almost the end now. So he says nobody knows precisely what Henry Singleton is going to do next year or next decade because nobody knows what the world is going to be like next year or next decade. And this is what Singleton says. And I love this. I do not define my job in any rigid terms, but in terms of having the freedom to do whatever seems to me to be in the best interest of the company at any given time. As his record shows, this is no empty phrase. So this made me, first of all, I think this is the best. So I don't keep any kind of calendar at all. Right. And one of the lessons I learned was from Marc Andreessen. I covered this. I think it's on founders number 50. When I did, I read all of Mark's blog posts. It was an ebook. Somebody. The blog posts are not online anymore. But his company that he runs now, a 16Z, will let you like download the ebook for free. I recommend doing it. It's fantastic. And One of you says, he says, the greatest personal productivity hack is not having a schedule. And it doesn't mean, like, you don't know what you're doing every day. But this is what Singleton's saying. It's like, if you don't have a schedule, if you don't. If you're not. Like, if your schedule, like, your calendar is not like, oh, you know, nine o', clock, I have to do here, and at 10:15, I have to be here. And, you know, kind of like, it's like a set of Legos. Like, all your time is counted for. When are you gonna think? So that's one thing that I thought I had, but not only that. It's like, I think the better schedule is asking yourself, what is the single most valuable thing I've been working on right now? And if you just ask yourself that every day and then do that, you're gonna create more value over the long term than you will sit trying to plan in advance for this meeting that you have two Thursdays from next week. So this. I don't apply this to work, but my personal life, you know, like, most modern people, like, you have to. You interact with other people, friends or whatever. And I have some friends that have this where it's just like, okay, oh, yeah, you wanna grab dinner? How does three weeks from Thursday sound? It's like, I'm not ever doing that. Like, no, you wanna hang out? Like, I'm not doing that. I have no idea what I'm gonna be like. I can't commit to something that far in advance. I don't know if that's the best use of my time or if I'm gonna be available or whatever case this is. I go, you wanna have dinner? Tell me the. Text me in the morning, hey, can you have dinner tonight? Or, hey, can you have dinner tomorrow night? Then I'll do that. But this idea where I'm gonna play this, like, calendar, like, go back and forth with you, like, no, I'm not doing that. I think that's. That's. That's a terrible, terrible idea. And I understand that's like, how most people schedule and whatever. That's how people want to be. That's how I want to be. It's just. I don't. My answer to that. It's unequivocally, no, I'm not doing that. And I think Singleton is telling us that in the professional, like, the professional domain, he's like, well, I'm not. I don't define my. My job in any Rigid terms, but in terms of having the freedom to do what seems to be the best interest of the company at any given time. And then the last sentence from this article, and I'm gonna jump into the book, is singleton has found a way to run a multi, multi billion dollar company in an entrepreneurial, innovative way, which is very, very rare. Okay, so let's go back to. Now I'm gonna go back to the outsiders and let's see. So what's fascinating to me is even though Thorndike, the author, is, he's profiling eight people. The preface is called singletonville. So he's profiling eight people, but he's clearly telling you who he thinks is the best CEO of all time. And he's going to use the word CEO here. Sure applies to CEOs. For our point, I'm going to use founder. Okay, so it says I'm going to. He's going to give us a brief overview of why he admires Singleton and then how the other people in the book that he's profiling, which include Warren Buffett and there's a bunch of other people kind of echo Singleton's like how he operates, he says. Known today only to a small group of investors, Henry Singleton was a remarkable man with an unusual background for CEO. Think Founder. A world class mathematician who enjoyed playing chess blindfolded. He had programmed MIT's first computer was while earning a doctorate in electrical engineering. During World War II, he developed technology that allowed allied ships to avoid radar detection. And in the 1950s, he created guidance systems that's still in use with most military and commercial aircrafts. All that before he founded a conglomerate, Teledyne, in the early 1960s and became one of history's great founders. Conglomerates were the Internet stock of the 1960s when large numbers of them went public. Singleton, however, ran a very unusual conglomerate. So some of this is going to be like, it's gonna be me repeating myself. I'm not, I don't shy away from that. I've told you before, like, I think reputation is persuasive and I, my goal here to create this podcast is to get these ideas spread. And it's to, I think repeating things helps you learn them over time. You'd be surprised, like, how much like I go back and read my highlights all the time and like, oh, I forgot about that. Like our memories are, they're not, they're imperfect. So I hope you don't mind the repetition, but it's important. Long before it became popular, he aggressively repurchased his stocks eventually buying in over 90% of Teledyne shares. That's bananas. He avoided dividends, emphasizing cash flow over reported earnings, ran a famously decentralized organization and never split the company stock. That's Buffett right there. Which for much of the 1970s and 80s was highest priced stock. He is known as a Spinx for his reluctance to speak with either analysts or journalists. And he never once appeared on the COVID of Fortune magazine. Singleton was an iconoclast and the idiosyncratic path he chose to follow caused much comment and consternation on Wall street and in the business press. It turned out he was right to ignore the skeptics. The long term returns of his better known peers. These are the people going to the conferences, giving the speeches, applying the magazine, being profiled in magazines, right? The long term results of his better known peers were generally mediocre, averaging only 11% per year, a small improvement over the S&P 500. Singleton, in contrast, ran Teledyne for almost 30 years and the annual compound return to his investors was an extraordinary 20.4%. Now check this out. It's going to blow your mind. If you had invested a dollar with Singleton in 1963, by 1960, when he retired as chairman, in the teeth of a severe bear market, it would have been worth $180. Now you can see why Claude Shannon, who invested heavily in Teledyne, had such a fabulous rate of return, which I covered in the podcast Unfortunate's formula. I think it was like I forgot how much of his portfolio Teledyne was like 30%, maybe 60%. I don't remember the exact number. It was a large point part of Claw Shannon's portfolio. His success did not stem from Teledyne owning any unique rapidly growing businesses. Rather, much of what distinguished Teledyne from his peers lay in his mastery of the critical but somewhat mysterious field of capital allocation. The process of deciding how to deploy the firm's resources to earn the best possible return for shareholders. Continuing. In the preface it says Singleton had a different focus. Actually, that's my notes. That's my note. Founders need to do two things well to be successful. Run their operations efficiently and deploy the cash generated by those operations. Right. Those are two completely different skills, though that's not the same thing. Just like I've told you before, I love this article. I think his name's like Morgan Housel or something. He wrote this great essay. It's like getting rich is one skill and staying rich is a completely different skill. So it says most founders in the management books they write or read focus on managing operations, which is undeniably important. Singleton, in contrast, gave most of its attention to the latter task. Same thing as Buffett. Right now, this is Buffett on capital allocation. We're still in the preface. I'll tell you when I get to the chapter on Singleton. In fact, this role just might be the most important responsibility any founder has. And yet, despite its importance, there are no courses on capital allocation at the top business schools. As Warren Buffett has Observed, very few CEOs founders come prepared for this critical task. The heads of many companies are not skilled in capital allocation. Their inadequacy is not surprising. Most bosses rise to the top because they have excelled in areas such as marketing, production, engineering, administration, or sometimes institutional politics. Once they become CEO, they now must make capital allocation decisions, a critical job that they may have never tackled and one that is not easily mastered. To stretch the point. This is such a great illustration or analogy here from Buffett. To stretch the point, it is as if the final step for a highly talented musician was not to perform at Carnegie hall, but instead to be named the chairman of the Federal Reserve. So now this is Singleton's approach. Right, we're going to get into that. Singleton was a master capital allocator. And his decisions in navigating among these various allocation alternatives differed significantly from the decisions his peers were making and had an enormous positive impact on long term returns for his shareholders. Specifically, Singleton focused Teledyne's capital on selective acquisitions and a series of large share repurchases. And he also used. Employed different strategies at different time. So he winds up going when, when he could use stock as currency, he, he wound up taking advantage of it by buying up a lot of companies. And then once he, I think he stopped completely and never bought more companies. I don't know, I want to say for like 10 or 15 years, it might have been 20 years, something like that. But he switches strategies depending on the environment. That's what's what's crazy about this guy. Like he's able to master so many different environments. So it says Singleton focuses capital on selective acquisitions and a series of large share repurchases. He was restrained in issuing shares, made frequent use of debt and did not. Now, hold on, he made frequent use of debt. But what he did is he used it to buy back equity and then because the businesses were throwing off so much cash flow, he aggressively paid down the debt. So that was left out, but that's important in my opinion. And did not pay a Dividend until the late 1980s. In contrast, the other conglomerates pursued a mirror image allocation strategy, actively issuing shares to buy companies, paying dividends, avoiding share repurchases, and generally using less debt. So just remember this, that the idea that we're comparing and contrasting, he just said it's a mirror image. So we got Singleton strategy and then everybody else on the other side. Remember when it gets to the end of this podcast, because you'll see what he, why he says, what he says about this. It's very interesting and very succinct. In short, they deployed a different set of tools with very different results. If you think of capital allocation more broadly as resource allocation and include the deployment of human resources, you find again that Singleton had a very highly differentiated approach. Specifically, he believed in an extreme form of organizational decentralization with a wafer thin corporate staff at headquarters and operational responsibility and authority concentrated in the general manager of the business units. Come on, what is that? Who is that? You take out Singleton and put in Buffett and that is still exactly right. Think about how many times in his shareholder letters he talks about this. He's like, oh, we're getting real bloated at HQ now. We're up to 8.5 full time people. We got 40,000 employees with all our conglomerates, we got 8.5 at HQ. That is the same thing. Specifically, he believed in an extreme form of organizational decentralization with a way for them corporate staff at headquarters and operational responsibility and authority concentrated in general managers of his business units. This is amazing. I am so excited because it's just more indication that we're not wasting our time here. And I didn't think we were in the beginning, but like Buffett, it's learning from and copying Singleton like, this is amazing. All right, I just lost my point now. Sorry. Authority concert. General managers of the business years. This was very different from the approach of his peers who typically had elaborate headquarters staff replacement replete with vice presidents and MBAs. Now he's gonna. This is Thorndike talking about what the people profile in his book have in common. They seem to operate in a Parallel universe. Universe 1 defined by devotion to a shared set of principles, a worldview which gave them citizenship in a tiny intellectual village. That's a weird paragraph. Okay, call it singletonville. Now it makes sense. A very select group of men and women who understood, among other things, that. Now let me get to bulletproof bullet points. This is what they all have in common. Capital allocation is a CEO's founder's most important job. Two, what counts in the long run is the increase in per share value, not overall growth or size. Amen. Three, cash flow, not reported earnings, is what determines long term value. Four, decentralized organizations release entrepreneurial energy and keep both cost and rancor down. I would put politics there. I think that's what it means. Five, independent thinking is essential to long term success. Period. Interactions with outside advisors, Wall street, the press, et cetera can be distracting and time consuming. Okay, now we're number six. Sometimes the best investment opportunity is your own stock. And finally, with acquisitions, patience is a virtue, as is occasional boldness. Okay, one more thing from the preface, optimize for cash flow. The outsiders believe the key to long term value creation was to optimize free cash flow. And this emphasis on cash informed all aspects of how they ran their companies. This single minded cash focus was the foundation of their iconoclasm. I don't think that's how you pronounce it. And it invariably led to a laser like focus on a few select variables that shaped each firm's strategy. So when I read that part, when it says it invariably led to a laser like focus on a few select variables that shaped each other's, each firm's, each company's strategy, I thought of that Charlie Munger quote I can't get out of my head. And he says, let me grab it real quick. He says, this is Charlie, he's talking now. In business we often find that the winning system goes almost ridiculously far in maximizing and or minimizing one or a few variables. And the example is like the discount warehouses for Costco. I love that, that the people profiling this book are doing the same thing. They're laser like, focus on a few select variables. You can't be good, really good at everything. You have to focus. All right, now we finally got to the chapter on Singleton. I'm going to talk about his early life. Talk about more stuff. It says, under its reclusive founder and CEO Henry Singleton, this dividend policy was, as we've just seen, just one in a series of highly unusual and contrarian practices of Teledyne. In addition to shooing dividends, Singleton ran a notorious decentralized operation. So this is what I mean. We're going to repeat a lot of this stuff, but I think it's valuable he avoided interacting with analysts, he didn't split his stock, and he repurchased his share as no one else ever has before or since. All of this was highly unusual and idiosyncratic. But what really set Singleton apart and eventually made him a Garbo like legend was his returns, which dwarfed both the market and his conglomerate peers. This is what Munger was saying earlier is like they're utterly ridiculous bananas. Singleton managed to grow value at an extraordinary rate across almost 30 years of wildly varying microeconomic conditions, starting in the Go Go stock market of 1960s and ending in the deep bear market in the early 1990s. That's what I meant. He could constantly just would switch strategies when. When the environment outside of his mind changed. He did this by continually adapting to changing market conditions and by maintaining a dogged focus on capital allocation. His approach differed significantly from his peers. How many times have I said that today? And the seeds of his iconoclasm can be traced to his background, which was also highly unusual. I'm gonna give you a little bit. Remember, there's really no biography on Singleton. So, like, these are gonna be very short. Like we just get a general idea of his life, but no one's gone in depth. At least that I found. Born in 1960 in a tiny Texas town, Singleton was a highly accomplished mathematician and scientist who never earned an mba. Instead, I already told you where he got his degree, so I'm gonna skip that part. Singleton programmed the first student computer at MIT as part of his doctoral thesis, and in 1939 won the Putnam Medal as a top mathematics student in the country. I didn't remember reading that. That's interesting. He was also an avid chess player who's 100 points shy of grand master level. This is the early career and founding of Teledyne. After graduation from MIT in 1950, he worked as a research engineer at Hughes Aircraft. He was then recruited by legendary former whiz kid Tex Thornton to Lytton Industries. Remember, this is where he made 140 million by investing in them later on. We're in the late 50s and now kind of makes sense. He worked there, right? Well, what does that mean? He had an edge. He had information. He knew about them and he invested where his edge was. This is a recurring theme the last few weeks, where in the late 1950s, he invented a guidance system. Skipping that, Singleton was promoted to general manager. And under his leadership, that division grew to the company's largest, with over 80 million in revenue by the end of the decade. He left in 1960 after it became clear to him that he would not succeed Thornton as CEO. He was 43 years old. So he gets his colleague George to come and they. They found Teledyne in July 1960. They started by acquiring three small electronic companies, and using this base, they successfully bid for a large naval contract. Teledyne became a public company in 1961 at the dawn of the conglomerate area era. Now, this is how he thinks about acquisitions. This is what I was referencing earlier. For Most of the 1960s, conglomerates enjoyed light, lofty price to earnings ratios and used the currency of their high price stock to engage in a prolonged frenzy of acquisition. Singleton took full advantage. So he had a. Almost like a. The market's essentially giving him an opportunity. Leverage, right. Without the bad kind of leverage. Singleton took full advantage of this extended arbitrage opportunity to develop a diversified portfolio of businesses. And between 1961 and 1969, he purchased 130 companies in industries ranging from aviation, electronics to specialty metals and insurance. All but two of these companies were acquired using Teledyne's pricey stock. Singleton's approach to acquisitions, however, differed from that of other conglomerateurs. Is that really a word? He did not buy indiscriminately. Avoiding. He did not buy indiscriminately. He avoided turnaround situations and focused instead on profitable growing companies with leading market positions, often in niche markets. Come on, man. Who is that? Who is that, Buffett? As Jack Hamilton, who ran Teledyne specialty metals division, summarized his business. To me, we specialize in high margin products that were sold by the ounce, not the ton. That's a new idea I don't think I've ever come across. And the research I've done for Founders of War, the note I left myself here is one of my favorite, like, quotes that I think of myself. Like when I analyze, like, what I'm actually doing. Like my. It doesn't matter what I think. It matters what I do. So to me, actions express my actual priorities. Like, I can't. I can't think in my mind. I want. I can't think. I can't tell myself this is important if there's no action to back that up, right? So actions express priority. In 1967, his largest acquisition to date, Singleton acquired Vasco Metals for $43 million and elevated its president, George Roberts, to the role of president of Teledyne. That's Roberts, who I was quoting from in that article, taking the titles of CEO and chairman for himself. Roberts had been Singleton's roommate at the Naval Academy, where he had been admitted at age 16 as the youngest freshman in school history. So he's got another like mini him, right? Once Roberts joined the company, Singleton began to remove himself from operations, freeing up the majority of his time to focus on strategic and capital allocation issues. That's what I mean by actions expressed priority. He's telling us with his actions, what's the most important use of his time? Capital allocation. The steward of the cash that my business is throwing off. Right. One where we referenced earlier that there's really. There's no classes on. Which is weird, right? If it's so important. Shortly thereafter, Singleton became the first of the conglomerateurs to stop acquiring. So this is what I was referencing earlier. I couldn't remember the exact year, but it says in mid-1969, with the multiple of his stock falling, which is where he had the leverage to buy up all those other companies, right? And acquisition prices rising, he abruptly dismissed his acquisition team. Think about it. He fired everybody. Singleton, as a disciplined buyer, realized that with a lower P to E ratio, the currency of his stock was no longer attractive for acquisitions. This is the sentence I was trying to grab from my memory and I forgot from this point on, the company never made another material purchase and never issued another share of stock. So he follows one insane strategy. And I mean that in a. In like a admirable way for a decade and on a drop of dying once the conditions change. Like, oh, I'm gonna. I'm gonna pick something different. This doesn't make any sense. This is what I mean. You're not. Your ideas. Your ideas are not. You don't hold on to them if they don't make any sense anymore. Singleton a favored favorite extreme decentralization. That's my notes. Singleton and Roberts of Shoe the the then trendy concepts of integration and synergy and instead emphasize extreme decentralization. This is the exact opposite of synergy, right? Breaking the company into its smallest component parts and driving accountability and managerial responsibility as far down into the organization as possible. This is something we see over and over again. The people. The closest to the problem should be the one coming up with the solution to the problem. At headquarters, there were fewer than 50 people in a company with over 40,000 total employees and no human resource and investor relations or business development departments. Ironically, the most successful conglomerate of the era was actually the least conglomerate like in its operations. That could be applied to so many different parts in life, right? Oh, and I love this. This is where I was getting excited earlier too. They create their own metric. They create their own metric. They call it the Teledyne return. It's not like saying they think deeply about what's going on, try to be rational and realize what is the thing that we should be optimizing for. For what is it? We can't focus on 20 different variables. It's impossible. Human beings, minds don't work like that. So what is the most important? And they figured out what the most important was and then they gave its own name. So this is a Teledyne return. Once the acquisition engine had slowed in 1969, Roberts and Singleton turned their attention to the company's existing operations. In another departure from conventional wisdom, they devised a unique metric that they termed the Teledyne return, which was averaging cash flow and net income for each business unit, emphasized cash generation and became the basis for bonus compensation for all business general. For all business unit general managers. They talked about building a machine, a cash generating machine. I love the idea of thinking about your business as a cash generating machine. We're building machines that do that, do something. And what do they produce? They produce free cash flow. Hold on. Oh. As he once told Financial World, if anyone wants to follow Teledyne, they should get used to the fact that our quarterly earnings will jiggle. Our accounting is set to maximize cash flow, not reported earnings. Again, this is something Buffett. I don't know if he came, if he's copying Singleton or came to it on his own, but he says the same thing. We'd prefer a lumpy 14 than a steady 12, meaning a lumpy 14% return than a steady 12%. We're not going to optimize. He talks about his shareholder letters. I'm not optimizing quarterly returns if that's the kind of don't buy my stock because I'm not going to do that. This is the result of focusing on this metric. Singleton and Roberts quickly improved margins and dramatically reduced working capital at Teledyne's operations, generating significant cash in the process. The result can be seen in the consistently high return on assets for Teledyne's operating businesses, which averaged north of 20% throughout the 1970s and 1980s. Warren Buffett's partner, Charlie Munger. I'm going to repeat myself here, but I want to. Describes these extraordinary results as miles higher than anybody else. Utterly ridiculous. Maybe I should make that a shirt. Would you buy a shirt that says utterly ridiculous? It would be like an inside joke for people that listen to this podcast. Utterly ridiculous. That's a fantastic. I would like a business that has utterly ridiculous returns. All right. Another note ruthlessly cut the fat. One division did not meet Singleton's exacting standards. I've already said this was the Packard Bell television set manufacturing business. And it is interesting to see how he And Roberts handled this rare underperforming business unit. When they realized that Packard Belt had a permanent competitive disadvantage relative to its lower cost Japanese competitors and could no longer earn acceptable returns, they immediately closed it, becoming the first American manufacturer to exit the industry. All the others followed over the next decade. They were just early and right. The net result of this initiative was that starting in 1970, the company generated remarkably consistent profitability across a wide variety of market conditions. This influx of cash was sent to headquarters to be allocated by Singleton. This influx of cash was sent to be headquarters to be allocated by Buffett. He's using the exact same strategy. The decision he made in deploying the capital were, not surprisingly, highly unusual and effective. Here's a little bit about, quote unquote, the Babe Ruth of repurchases. Singleton placed a call from a midtown Manhattan phone booth to one of his board members, the legendary venture capitalist Arthur Rock, who would later go on to back both Apple and Intel. In fact, Singleton personally invests like $100,000. In one of the early rounds of Apple, Singleton began, Arthur, I've been thinking about it and our stock is simply too cheap. I think we can earn a better return buying our shares at these levels than by doing almost anything else. I'd like to announce a tender. What do you think? Rock reflected and said, I like it. With those words, one of the seminal moments in the history of capital allocation was launched. Starting with that 1972 tender and continuing for the next 12 years, Singleton went on an unprecedented share repurchasing spree that had a galvanic effect on Teledyne stock prices. While almost single handedly overturning long held Wall street beliefs. And so once again, Singleton is going against conventional wisdom here. He says the conventional wisdom was that repurchasers signaled a lack of internal investment opportunity and they were thus regarded by Wall street as a sign of weakness. Singleton ignored this orthodoxy and between 1972 and 1984, in eight separate tender offers, he bought back an astonishing 90% of Teledyne's outstanding shares. As Munger says, no one has ever bought in bought shares as aggressively. And why he did this. Singleton believed buying stock at attractive prices was self catalyzing, analogous to coiling a spring that at some future point would surge forward to realize full value, generating exceptional return in the process. Okay, I said this before. He changed. This is my. No, no, he changed his mind. When the facts change, this is not. This is essential for everyone in life. The more likely outcome is for us to accept our own dogma and not deviate from it. That's me talking to myself. Singleton brought bought extremely well, generating an incredible 42% compound annual return for Teledyne shareholders across the tenders. That is insane. That's insane. Number here. It's important, however, to recognize that this obsession with repurchases represented an evolution in thinking for Singleton, who earlier in his career when he was building Teledyne, had been an active and highly effective issuer of stock. Great investors and capital allocators must be able to both sell high and buy low. The average price to earnings ratio for Teledyne, this is an example of that. The average price to earning ratio for Teledyne's stock issuances was over 25%. In contrast, the average multiple for his repurchases was under 8. So he bought low at 8 and would sell high at 25. Okay, so next idea. This is something that we've talked a lot about over the past few weeks. Invest heavily where you have an edge. Stay within your circle of competence. Bet heavy. Singleton had been fascinated by the stock market since his teens. In the mid-1970s, Singleton finally had an opportunity to act on this lifelong fascination when he assumed direct responsibility for investing the stock portfolios of Teledyne's insurance subsidiaries during a severe bear market. In the area of portfolio management, as with acquisitions, operations and repurchases, Singleton developed an idiosyncratic approach with excellent results. In a significantly contrarian move, he aggressively reallocated the assets in these insurance portfolios, increasing the total equity allocation from 10% in 1975 to. To a remarkable 77% six years later. Okay, so went heavy in equities in six years. Singleton's approach to implementing this dramatic portfolio shift was even more unusual. He invested over 70% of the combined equity portfolios in just five companies with an incredible 25% allocated to one company. That's his former employer, Litton Industries, that I mentioned earlier. This extraordinary portfolio concentration caused consternation on Wall street, where many observers thought Singleton was preparing for a new round of acquisitions. Singleton had no such intention. But it is instructed to look more closely at how he invested these portfolios. His top holdings were invariably companies he knew. Well, I'm not going to say it anymore because I've already said it 700 times. You know who this sounds like. Stop holding for invariably, companies knew well whose PE ratios were at or near record lows at the time of his investment. As Charlie Munger said of Singleton's investment approach, like, oh, I guess he's gonna say it for me. I'M sorry guys like Warren and me. He was comfortable with concentration and only bought a few things that he understood well, okay, so event, now here's the thing. I'm skipping over vast amounts of time here, okay? Eventually the companies he purchased start to stagnate. This is what he does then. This is inevitable. Like things are going to change. That's the only one constant in life. That change is constant. To optimize shareholder value in the face of stagnating, stagnating results at Telennan's operating division and to. And to accomplish. To accomplish these objectives, Singleton resorted to new tactics, again confounding Wall Street. Singleton was a pioneer in the use of spin offs, which he believed would both simplify succession issues at Teledyne by reducing the company's complexity and unlock the full value of the company's large insurance operation for shareholders. Singleton believed there is a time. This is a quote from him. There is a time to conglomerate and a time to deconglomerate. This is what I mean. He's not going to hold on to these ideas. The ideas are not him. When it makes sense for me to be a conglomerate, then I'm going to do that. When it no longer makes sense, I'm going to make the change. So the time to for deconglomeration finally arrived in 1986. This is towards the end of his career, right? And then at this point, he's gonna change his mind again. He was against the dividend until he wasn't. Remember in the article, he's like, why am I gonna give a dividend? I'm making 30% return, I can invest better, et cetera, et cetera. Well, it's gonna change. He's in a different Environment Now. In 1987, at a time when both acquisition and stock prices, including his own, were at historic highs, Singleton concluded that he had no better higher returning options for deploying the company's cash flow and declared the company's first dividend in 26 years as a public company. This was a seismic event for long time Teledyne observers, signaling the arrival of a new phase in the company's history. After this, after these successful spin offs, and with Roberts established in the CEO role, Singleton retired as chairman in 1991 to focus on his extensive cattle ranching operations. He had another passion in life which, which was he owned a giant amount of land and he had extended, like they just said, extensive cattle ranching operations. So he's like, all right, basically just, I've done home run after home run after home run for 30 years. I'm out. He just leaves. It's like, all right, we're good. He comes back a few years later because Telenine winds up getting purchased or merged or however you want to call it. And he decides to come back to negotiate. And how he even negotiates the mergers is different. He returned, however, in 1986, this is five years later, to personally negotiate the merger of Teledyne's remaining manufacturing operations. In these negotiations, Singleton focused exclusively. We talk about this a lot, right? Just focus on the few variables that you think is about the highest value on getting the best possible price, ignoring other peripheral issues such as management titles and board composition. Again, the outcome was a favorable one for Teledyne shareholders. A 30% premium to the company's prior trading price. This guy just, he's been in the zone for four decades. It's insane. All right, so I'm almost done. There's just two things I want to cover. And I mentioned, I think both of them a little bit before Singleton on time management, which is hugely, hugely valuable. One of the most important decisions any CEO founder makes is how to spend your time. Henry Singleton's approach to time management was, not surprisingly, very different from Pierce. Now we're going to some quotes from Singleton or a quote from Singleton. I don't reserve any day to day responsibilities for myself, so I don't get into any particular rut. I do not define my job in any rigid terms, but in terms of having the freedom to do whatever it seems to be in the best interest of the company at any time. Now this is my note. In other words, he allows himself the freedom to work on the most important thing right? Now compare that strategy to the CEOs of the giant companies today. They like similar to like the president of countries. It's like they know what they're gonna be doing six months from now down to the minute. You think that's the most effective way. And like I know one of the most successful companies is also Berkshire. I'm not obviously talking about Berkshire because we know Warren doesn't do that, but that just seemed, doesn't that seem like straightforward, like, yes, of course it's the best idea. So why, if you agree with the statement that Henry Singleton made that that's clearly the best idea, right? Why is that not the most common thing? And to answer that, I think you have to study human nature. What's the point of studying history? To study human nature? They're not thinking, they're mimicking. That's what we don't think as a species we mimic and we mimic the wrong things. A lot of times that's hard for people to accept, but I do think it's fundamentally true. I don't reserve any day to day responsibilities for myself, so I don't get any particular rut. I do not define my job in any rigid terms, but in terms of having the freedom to do whatever seems to be in the best interest of the company at any time. Singleton eschewed detailed strategic plans, preferring instead to retain flexibility and keep options open because he understands how complex the world is. Right. As he once explained at a Teledyne annual meeting, my only plan is to keep coming to work. I like to steer the boat each day rather than plan ahead way into the future. I know a lot of people have very strong and definitive plans. They have worked out on all kinds of things. But we're subject to a tremendous number of outside influences and the vast majority of them cannot be predicted. So my idea is to stay flexible. I think at this point, you see why I was so excited to cover this guy to do this podcast today. Like, I just, I love the way he thought. I really do. Okay, this is something I mentioned earlier I wanted you to remember. He gives an interview shortly before he dies. He dies 82 years old of brain cancer. And you're going to see his natural instinct is still present. And I'm going to end the podcast with a direct quote from him. And I think if you had to summarize the way he operated a business based on what we learned today. He summarizes in one sentence for us here says Singleton's fierce independence of mind remained a prominent trait until the end of his life. In 1997, two years before his death from brain cancer at age 82, he sat down with Leon Cooperman, a longtime Teledyne investor at the time. A number of Fortune 500 companies had recently announced large share repurchases. What is that, 20 something years after he did it? Something like that. When Cooperman asked him about them, Singleton responded presently, presciently, if everyone's doing them, there must be something wrong with them. If everyone's doing them, there must be something wrong with them. I love that. And I think like, he lived, not only is he saying that towards the end of his life, but he lived that. He lived that way and he. That's the way he ran his company. But not focusing and realizing, hey, if everybody's doing it, most likely they're mimicking. They're not actually thinking, let me sit down and think for myself. Let me ignore all the cacophony or whatever that word is and just figure out what is the best thing to do. The single best thing I could do right now that is straightforward, simple, but not easy. There's something in our nature that makes that hard for us to do, but it's just very simple and profound idea. So. So I'm gonna leave the story there. If you want to learn more, buy the book the Outsider to buy the book and support the podcast at the same time, the link in the show notes is the best way to do it. You can also go to founderspodcast.com and you see it says like all the books, all the 90 something books I've done so far. Alright, I've talked enough. My voice is getting hoarse. Thank you very much for listening. Thank you very much for the support and I'm gonna go and do all the research I need to do so I can make sure that next week's podcast is equally as valuable to you. Thank you very much. I'll talk to you later.