The Outsiders by William Thorndike Jr. is a master class in how to allocate capital. Thorndike profiles eight CEOs he calls "outsiders". Why outsiders? Because they think and act differently from most other CEOs.

These outsiders are Tom Murphy of Capital Cities, Henry Singleton of Teledyne, Bill Anders of General Dynamics, John Malone of TCI, Katharine Graham of The Washington Post Co., Bill Stiritz of Ralston Purina, Dick Smith of General Cinema, and Warren Buffett of Berkshire Hathaway.

They come from all walks of life. Different backgrounds, different educations. But they have a lot in common. They always crunch the numbers. But they kept the math simple and conservative. They buy back their own stock when it makes sense. They think for themselves. They don't care about being famous or making Wall Street happy.

They bide their time. When the perfect opportunity comes along, they strike. They're rational, analytical, and practical. They think long-term. Their secret weapon isn't being smarter than everyone else. It's having the right temperament.

Thorndike's book is a deep dive into how these "outsiders" tick. It's a guidebook on capital allocation.

What did I get out of it?

Business schools teach us that great CEOs excel at operations. But there are two types of people in business: those who run companies and those who invest in them. The lessons from these unconventional CEOs show us a different approach. It's not just about being a charismatic leader. It's about carefully deploying your company's resources.

These CEOs thought more like investors than managers. Investing is all about allocating capital. The core of the book is a 10-item checklist based on the lives and lessons of these CEOs. I've included the checklist as is. The sections following the checklist cover notes and highlights exploring the qualities and characteristics that allowed these CEOs to execute the checklist flawlessly over decades.

Capital Allocation Checklist

Allocation process should be CEO-led, not delegated to finance or business development personnel.
Start by determining the hurdle rate, the minimum acceptable return for investment projects.
- Comment: Hurdle rates should be determined in reference to the set of opportunities available to the company, and should generally exceed the blended cost of equity and debt capital (usually in mid-teens or higher).
Calculate returns for all internal and external investment alternatives and rank them by return and risk. Use conservative assumptions and calculations do not need to be perfectly precise.
- Comment: Projects with higher risk (such as acquisitions) should require higher returns. Be very wary of adjective strategic - it is often corporate code for low returns.
Calculate the return for stock repurchases. Require that acquisition returns meaningfully exceed this benchmark.
- Comment: While stock buybacks were a significant source of value creation for these outsider CEOs, they are not a panacea. Repurchases can also destroy value if they are made at exorbitant prices.
Focus on after-tax returns and run all transactions by a tax counsel.
Determine acceptable, conservative cash and debt levels and run the company to stay within them
Consider a decentralized organizational model. (What is the ratio of people at corporate headquarters to total employees - how does this compare to your peer group?)
Retain capital in the business only if you have confidence, you can generate returns over time that are above your hurdle rate.
If you do not have potential high-return investment projects, consider paying a dividend. Be aware, however, that dividend decisions can be hard to reverse and that dividends can be tax inefficient.
When prices are extremely high, it's OK to consider selling business or stock. It's also OK to close under-performing business units if they are no longer capable of generating acceptable returns.

Believed Capital Allocation is CEO's Most Important Job

CEOs need to do two things well to be successful: run their operations efficiently and deploy the cash generated by those operations.

Basically, it's about running a tight ship and then investing the profits wisely.

One of the most important decisions any CEO makes is how he spends his time—specifically, how much time he spends in three essential areas: management of operations, capital allocation, and investor relations.

Like others in this book, he relied on simple but powerful rules in evaluating transactions. For Murphy, that benchmark was a double-digit after-tax return over ten years without leverage.

Kept things simple and cut through the complexity.

Murphy was willing to wait a long time for an attractive acquisition. He once said, "I get paid not just to make deals, but to make good deals.”

Patience and aggression.

His success did not stem from Teledyne’s owning any unique, rapidly growing businesses. Rather, much of what distinguished Singleton 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.

What really set him apart was his absolute mastery of capital allocation.

CEOs need to do two things well to be successful: run their operations efficiently and deploy the cash generated by those operations. Most CEOs (and the management books they write or read) focus on managing operations, which is undeniably important. Singleton, in contrast, gave most of his attention to the latter task.

Running your business efficiently and effectively
Figuring out the best way to use the cash your business generates

In fact, this role just might be the most important responsibility any CEO 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 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 an area such as marketing, production, engineering, administration, or sometimes, institutional politics. Once they become CEOs, they now must make capital allocation decisions, a critical job that they may have never tackled and that is not easily mastered. To stretch the point, it’s as if the final step for a highly talented musician was not to perform at Carnegie Hall, but instead, to be named Chairman of the Federal Reserve.

Warren Buffet on importance of capital allocation.

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 twenty-six years as a public company. This was a seismic event for longtime Teledyne observers, signaling the arrival of a new phase in the company’s history. 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.

Declaring dividend is also just another capital allocation decision.

Both Buffett and Singleton designed organizations that allowed them to focus on capital allocation, not operations. Both viewed themselves primarily as investors, not managers.

In many ways, Buffett and Singleton redefined what it meant to be a CEO. They showed that in the right organization, a CEO's most important role is not to be a master operator, but to be a master capital allocator.

Sometimes Best Investment Opportunity is Your Own Stock

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 back both Apple and Intel). 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 a moment and said, “I like it.”4 With those words, one of the seminal moments in the history of capital allocation was launched.

He was always looking for the highest-return use of Teledyne's cash, even if it meant going against convention. And in this case, he believed that betting on Teledyne itself was the smartest move he could make.

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,

He saw buybacks as self-catalyzing. By reducing the number of shares outstanding, each remaining share would represent a greater ownership stake in Teledyne. This, in turn, would make the stock more attractive to investors.

Singleton bought extremely well, generating an incredible 42 percent compound annual return for Teledyne’s...

The results.

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’s stock issuances was over 25; in contrast, the average multiple for his repurchases was under 8.

Buying cheap and selling high.

Singular Focus on Increasing Shareholder Value

Most important metric to judge effectiveness of a CEO is the increase of per share value, not growth in sales or earnings.

In assessing performance, what matters isn’t the absolute rate of return but the return relative to peers and the market. You really only need to know three things to evaluate a CEO’s greatness: the compound annual return to shareholders during his or her tenure and the return over the same period for peer companies and for the broader market (usually measured by the S&P 500).

The annual return shareholders got during the CEO's time in charge.
How other companies in the same industry did over that period.
How the broader market (like the S&P 500) performed.

Paley's strategy at CBS was consistent with the conventional wisdom of the conglomerate era, which espoused the elusive benefits of “diversification" and "synergy" to justify the acquisition of unrelated businesses

At its core, Paley's strategy focused on making CBS larger

In contrast, Murphy's goal was to make his company more valuable.

Growth versus value - is what set the two companies on very different paths.

The goal is not to have the longest train, but to arrive at the station first using the least fuel.

As per Tom Murphy, largest doesn't mean, the most amount of shareholder value.

When a CEO generates significantly better returns than both his peers and the market, he deserves to be called “great,” and by this definition, Welch, who outperformed the S&P by 3.3 times over his tenure at GE, was an undeniably great CEO. He wasn’t even in the same zip code as Henry Singleton, however.

Sustained value creation for shareholders.

Most CEOs grade themselves on size and growth...very few really focus on shareholder returns."

The conventional wisdom is that a CEO's job is to grow the company - to make it bigger, to expand into new markets, to acquire other businesses. And indeed, many CEOs are judged and rewarded based on metrics like revenue growth, market share, and the size of their company's workforce.

But as Bill Anders points out, this focus on size and growth doesn't necessarily align with what's best for shareholders. A company can grow rapidly, but if that growth doesn't translate into increased profits and cash flow, it may not create any real value.

Bill believed that General Dynamics should only be in businesses where it had the top or second spot in the market, exit commodity businesses where returns were unsatisfactory, stick to businesses it knew well. Exit everything else.

Iconoclasts - Went Against the Common beliefs of the Time

It is impossible to produce superior performance unless you do something different.

Holds true for everything in life. If we do what everyone else is doing, we are only going to get average results. Two ways to approach this:

Do what everyone else is doing but do it better.
Do something better.

Each ran a highly decentralized organization, made at least one very large acquisition, developed unusual, cash flow-=based metrics and bought back a significant amount of stock. None paid meaningful dividends or provided Wall Street guidance. All received the same combination of derision, wonder, and skepticism from their peers and the business press. All also enjoyed eye-popping, credulity-straining performance over very long tenures (twenty plus years on average)

Importance of having a strong character, resilience, along with an internal compass and internal scorecard.

Exceptional relative performance demands new thinking, and at the center of the world view shared by these CEOs was a commitment to rational thinking, to analyzing the data and to thinking for themselves.

They didn't just accept conventional wisdom or go with the flow. They looked at things with fresh eyes, relied on hard information to guide them, and drew their own conclusions.

As Shane teaches in Decision by Design, never let others define the problem for you and do not rely on secondhand information.

Warren Buffett often compares the rivalry between Tom Murphy's company, Capital Cities Broadcasting, and CBS to a transAtlantic race between a rowboat and the QE2, to illustrate the tremendous effect management can have on long-term returns.

When Murphy became the CEO of Capital Cities in 1966, CBS, run by the legendary Bill Paley, was the dominant media business in the country, with TV and radio stations in the country's largest markets, the top-rated broadcast network, and valuable publishing and music properties.

In contrast, at that time, Capital Cities had five TV stations and four radio stations, all in smaller markets. CBS's market capitalization was sixteen times the size of Capital Cities'. By the time Murphy sold his company to Disney thirty years later, however, Capital Cities was three times as valuable as CBS.

In other words, the rowboat had won.

Decisively.

Even if you start small, the right leadership can help you overtake the giants in your industry. Murphy's skill as a CEO made all the difference in the long run.

So, how did the seemingly insurmountable gap between these two companies get closed?

The answer lies in fundamentally different management approaches. CBS spent much of the 1960s and 1970s taking the enormous cash flow generated by its network and broadcast operations and funding an aggressive acquisition program that led it into entirely new fields, including the purchase of a toy business and the New York Yankees baseball team.

CBS issued stock to fund some of these acquisitions, built a landmark office building in midtown Manhattan at enormous expense, developed a corporate structure with forty-two presidents and vice presidents,

and generally displayed what Buffett's partner, Charlie Munger, calls "a prosperity-blinded indifference to unnecessary costs.”

CBS was making so much money that they got sloppy and let expenses get out of control.

Capital Cities, on the other hand, stayed focused and disciplined. They kept things lean and mean, and it paid off in the long run.

Capital Cities rejected diversification and instead created an unusually streamlined conglomerate that focused laser-like on the media businesses it knew well.

Murphy acquired more radio and TV stations, operated them superbly well, regularly repurchased his shares.

Tom Murphy went against the common wisdom of diversifying. He knew where his edge was and doubled down on it.

The company's hiring practices were equally unconventional.

With no prior broadcasting experience themselves before joining Capital Cities, Murphy and Burke shared a clear preference for intelligence, ability, and drive over direct industry experience.

They were looking for talented, younger foxes with fresh perspectives.

Common managers prefer industry experience. Even now. However, they preferred intelligence, ability and drive.

By bringing in smart, ambitious people from diverse backgrounds, they were able to constantly inject fresh thinking into the organization. Something to be said about current hiring practices.

Known today only to a small group of investors and cognoscenti, Henry Singleton was a remarkable man with an unusual background for a CEO. A world-class mathematician who enjoyed playing chess blindfolded, he had programmed MIT’s first computer 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 an inertial guidance system that is still in use in most military and commercial aircraft. All that before he founded a conglomerate, Teledyne, in the early 1960s and became one of history’s great CEOs. Conglomerates were the Internet stocks of the 1960s, when large numbers of them went public. Singleton, however, ran a very unusual conglomerate. Long before it became popular, he aggressively repurchased his stock, eventually buying in over 90 percent of Teledyne’s shares; he avoided dividends, emphasized cash flow over reported earnings, ran a famously decentralized organization, and never split the company’s stock, which for much of the 1970s and 1980s was the highest priced on the New York Stock Exchange (NYSE). He was known as “the Sphinx” for his reluctance to speak with either analysts or journalists, and he never once appeared on the cover 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.

He's still relatively unknown outside of a small circle of investors and business insiders. It is Warren Buffet and Charlie Munger who have touted him as one of the, if not the best investors of all time.

Phil Fisher, a famous investor, 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 customer/shareholders.

Buffett has often said that he wants Berkshire Hathaway to be the kind of company that he himself would want to invest in. He's designed Berkshire's policies, from its decentralized structure to its hands-off approach to subsidiaries, with this in mind. The result is that Berkshire tends to attract shareholders who think like Buffett - patient, value-oriented investors who are in it for the long haul.

Singleton took a similar approach at Teledyne. By running the company in an unconventional way, with a focus on cash flow and a willingness to make bold capital allocation moves, he attracted shareholders who believed in his vision and trusted his judgment.

Cash Flow, not Reported Earnings, is What Determines Long-Term Value

Murphy turned the station into a consistent cash generator by improving programming and aggressively managing costs, a formula that the company would apply repeatedly in the years ahead.

Generated cash by focusing on just those two levers - content and costs

believed 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

Cash is king.

Singleton and Roberts quickly improved margins and dramatically reduced working capital at Teledyne’s operations, generating significant cash in the process. The results can be seen in the consistently high return on assets for Teledyne’s operating businesses, which averaged north of 20 percent throughout the 1970s and 1980s. Warren Buffett’s partner, Charlie Munger,

Cash isn't just generated from reported earnings. A lot of cash gets trapped in working capital. Focusing and unlocking value through working capital management is also a key lever.

Decentralized Organizations Release Entrepreneurial Energy and Keep both Costs and Unhappiness Down

Murphy’s approach to the roll-up was different. He moved slowly, developed real operational expertise, and focused on a small number of large acquisitions that he knew to be high-probability bets. Under Murphy, Capital Cities combined excellence in both operations and capital allocation to an unusual degree. As Murphy told me, “The business of business is a lot of little decisions every day mixed up with a few big decisions.”

Success comes from getting the day-to-day details right while also having the wisdom to make smart big-picture choices.

“Decentralization is the cornerstone of our philosophy. Our goal is to hire the best people we can and give them the responsibility and authority they need to perform their jobs. All decisions are made at the local level. We expect our managers. to be forever cost conscious and to recognize and exploit sales potential.”

Empowering teams and avoiding unnecessary bureaucracy.

The system in place corrupts you with so much autonomy and authority that you can’t imagine leaving.

Frank Smith on Cap Cities.

People don't leave Cap Cities because they get addicted (in a good way) to independence and autonomy.

The outsider CEOs shared an unconventional approach, one that emphasized flat organizations and dehydrated corporate staffs.

Put resources into the actual business, not some big, fancy headquarters.

The hallmark of the company's culture—extraordinary autonomy for operating managers-was stated succinctly in a single paragraph on the inside cover of every Capital Cities annual report:

"Decentralization is the cornerstone of our philosophy. Our goal is to hire the best people we can and give them the responsibility and authority they need to perform their jobs.”

While most firms were all about control and hierarchy, Capital Cities was the opposite. They believed in pushing power down to the front lines and letting their managers call the shots.

Headquarters staff was anorexic.

There were no vice presidents in functional areas like marketing, strategic planning, or human resources; no corporate counsel and no public relations department.

Lean and mean approach to the corporate center.

The company's guiding human resource philosophy, repeated ad infinitum by Murphy, was to "hire the best people you can and leave them alone."

As Burke told me, the company's extreme decentralized approach "kept both costs and rancor down.”

It wasn't just about pinching pennies. It was a fundamental belief in the power of autonomy.

Burke began sending weekly memos to Murphy.

After several months of receiving no response, he stopped sending them, realizing his time was better spent on local operations than on reporting to headquarters.

Murphy delegates to the point of anarchy.

Great example and quote on how radically hands-off Tom Murphy was. He genuinely believed that the best thing he could do was stay out of his managers' way.

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. He was restrained in issuing shares, made frequent use of debt, 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. 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 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 managers of the business units. This was very different from the approach of his peers, who typically had elaborate headquarters staffs replete with vice presidents and MBAs.

Repeated theme across this book. Decentralized operations and a razor thin corporate headquarter.

Singleton eschewed the then trendy concepts of “integration” and “synergy” and instead emphasized extreme decentralization, breaking the company into its smallest component parts and driving accountability and managerial responsibility as far down into the organization as possible.

At headquarters, there were fewer than fifty people in a company with over forty thousand total employees and no human resource, investor relations, or business development departments.

Ironically, the most successful conglomerate of the era was actually the least conglomerate-like in its operations.

CEOs profiled in this book, even with diverse conglomerates believed in decentralization.

TCI's headquarters did not look like the HQ of the largest company in an industry that was redefining the American media landscape. The company's offices were spartan, with few executives at corporate, fewer secretaries and peeling metal desks on Formica floors

The same theme repeats for TCI and John Malone. The corporate headquarters was kept lean and thin.

Independent Thinking vital to long-term success and outside interaction with advisers should be minimized

“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 seems to be in the best interests of the company at any time.”

Spend time thinking. Singleton allowed himself the freedom to work on the most important thing right now.

Believed that "leadership is analysis" as without this critical component you have to rely on others, like bankers

Bill Stiritz, the CEO of Ralston Purina, was known for his analytical approach to leadership. He believed that a CEO needed to have a deep understanding of their business and the market in which it operated.

The quote "leadership is analysis" encapsulates this philosophy. For Stiritz, leadership wasn't about charisma or vision alone. It was about having the analytical skills to understand complex situations, spot opportunities and risks, and make informed decisions.

Believed That with Acquisitions, Patience is a Virtue, As is Occasional Boldness

Very strict acquisition rules - double digit after-tax return over 10 years without leverage

Cap Cities.

The formula that allowed Murphy to overtake Paley's QE2 was deceptively simple: focus on industries with attractive economic characteristics, selectively use leverage to buy occasional large properties, improve operations, pay down debt, and repeat.

Repeat what works.

Murphy, in his masterstroke, bought the ABC Network for nearly $3.5 billion with financing from his friend Warren Buffett.

The ABC deal was the largest non-oil and gas transaction in business history to that point and an enormous bet-the-company transaction for Murphy, representing over 100 percent of Capital Cities' enterprise value.

The acquisition stunned the media world and was greeted with the headline "Minnow Swallows Whale"

At closing, Burke said to media investor Gordon Crawford, "This is the acquisition I've been training for my whole life."

Stay in the game long enough to get lucky.

Murphy also frequently used debt to fund acquisitions, once taken the assets summarizing his approach as

"always, we've taken the assets once we've paid them off and leveraged them again to buy other assets.”

Strategic debt can be a powerful tool for growth. By leveraging their existing assets, Cap Cities could make acquisitions that might otherwise be out of reach.

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. He did not buy indiscriminately, avoiding turnaround situations, and focusing instead on profitable, growing companies with leading market positions, often in niche markets. As Jack Hamilton, who ran Teledyne’s specialty metals division, summarized his business to me, “We specialized in high-margin products that were sold by the ounce, not the ton.”

Focus on quality over quantity set Singleton apart from many of his peers. He wasn't just trying to build a sprawling empire. He was carefully curating a portfolio of strong, profitable businesses that could generate cash and create value for Teledyne's shareholders over the long term.

Often Frugal, Humble, not Overly Charismatic, Analytical and Understated People Who Were Devoted to Their Families

When asked whether this was a case of leading by example, Murphy responded, “Is there any other way?”

Murphy understood that people would follow his actions, not just his words. If he wanted to create a certain kind of culture in the company, he had to live it himself every day.

We expect our managers to be forever cost conscious.

Whatever the business model maybe. Cost control is at its center.

They repeat the importance of watching costs constantly.

Again, the importance of frugality.

Murphy and Burke realized early on that while you couldn't control your revenues you could control your costs.

They believed that the best defense against the revenue lumpiness inherent in advertising-supported businesses was a constant vigilance on costs, which became deeply embedded in the company's culture.

May not sound as sexy as chasing big sales numbers, but Murphy and Burke understood that mastering your costs is what gives you true staying power.

Avoided Stupid Decisions

Avoiding stupid decisions as, if not more, important than making good decisions. On that same note, avoiding bad industries/businesses just as important as choosing good ones.

Classic Buffet and Munger quote.

These CEOs thought avoiding dumb decisions was just as important as making smart ones. A single bad move could cancel out a bunch of good ones.

They also believed dodging lousy industries and businesses mattered as much as picking strong ones. Even the best CEO would have a hard time making money in a really troubled sector.

The main point is that success comes from both making good choices and not making awful ones. Staying out of trouble can take you just as far as chasing big wins.

What's interesting is that his peers at other media companies didn't follow this path. Rather, they tended, like CBS, to follow fashion and diversify into unrelated businesses, build large corporate staffs, and overpay for marquee media properties.

Many of Murphy's contemporaries followed the path of CBS under Bill Paley. They diversified into unrelated businesses, often overpaying for high-profile acquisitions. They built up large corporate staffs and expensive headquarters. And they seemed more interested in the prestige of owning marquee media properties than in the actual economics of these businesses.

Often find that the most technically savvy CEOs typically are some of the last to implement new technology, preferring the role of technological "settler" as opposed to "pioneer."

New technologies often come with bugs, compatibility issues, and unforeseen consequences. They can require significant upfront investments in infrastructure and training. And there's always the risk that a much-hyped innovation will turn out to be a dud - or that a better alternative will come along shortly after a company has committed to a particular tech stack.

This isn't to say that these CEOs are tech luddites. Far from it. They understand the power and potential of technology. But they also understand that technology is a means to an end, not an end in itself. Their ultimate goal is to create value for their companies and shareholders, and they view technology as a tool to help them achieve that goal - but only when the benefits clearly outweigh the risks.

Practical, Opportunistic and Flexible, and they are not Bound by Ideology or Strategy

This single decision underscores a key point across the CEOs in this book: as a group, they were, at their core, rational and pragmatic, agnostic and clear-eyed. They did not have ideology. When offered the right price, Anders might not have sold his mother, but he didn’t hesitate to sell his favorite business unit.

Didn't let sentiment stand in the way of doing what was best for the company

Theirs was an excellent partnership with a very clear division of labor:

Burke was responsible for daily management of operations, and Murphy for acquisitions, capital allocation.

As Burke told me, "Our relationship was built on a foundation of mutual respect. I had an appetite for and a willingness to do things that Murphy was not interested in doing.

Burke believed his "job was to create the free cash flow and Murphy's was to spend it.”

It was a clear division of responsibilities that played to each of their strengths. Great partnerships have

Clear division of labor.
Complimentary skill sets.
Differing but complimentary ways the partners want to spend their time.

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. Shortly thereafter, Singleton became the first of the conglomerateurs to stop acquiring. In mid-1969, with the multiple on his stock falling and acquisition prices rising, he abruptly dismissed his acquisition team. Singleton, as a disciplined buyer, realized that with a lower P/E ratio, the currency of his stock was no longer attractive for acquisitions. From this point on, the company never made another material purchase and never issued another share of stock.

With acquisitions off the table, Singleton would now focus on optimizing the portfolio of businesses he had assembled and allocating capital in the most efficient way possible.

Singleton eschewed detailed strategic plans, preferring instead to retain flexibility and keep options open. As he once explained at a Teledyne annual meeting, “I know a lot of people have very strong and definite plans that they’ve 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.

This approach allowed Singleton to be opportunistic. When he saw a chance to buy back Teledyne's stock at an attractive price, he was ready to act. When a potential acquisition no longer made sense, he was willing to walk away. By not being tied to a preset plan, Singleton was able to adapt to changing circumstances and allocate capital in the most effective way possible.

Positioning himself and the company to take advantage of opportunities.

Most CEOs in this book avoided detailed strategic plans, preferring to stay flexible and opportunistic. These CEOs were always "rational and pragmatic, agnostic and clear-eyed. They did not have ideology"

Some examples of rational and pragmatic behavior from Bill Anders:

He sold off the F-16 business, his favorite by far, because he was offered such an attractive price. Left with two business units with top market positions - tanks and submarines.
After selling off businesses, turned to returning money to shareholders - special dividends and repurchases (30% of shares outstanding).
Believed in the naval succession model in which retiring captains avoid returning to their ships so as not to interfere with their successor's authority

Who Should Read It?

This book should be read like an academic textbook on capital allocation in particular for large public companies. Certain lessons can be applied towards personal investing and running smaller business but given that the CEOs profiled are from large-listed corporations, the focus of the book is on investment decisions in set up of a large corporation.

That said, this is probably one of the best books out there on the subject of capital allocation. Given that it is such a hot topic in corporate finance, you will be hard pressed to find a better and more engaging book on the subject, presenting a perfect blend of stories and principles.

If I had to nitpick, I would say that the book can be a bit repetitive at times. You could probably get 80 percent of the value from the book by reading the chapters on Henry Singleton, Tom Murfy and Warren Buffet, along with Chapter 9 on Radical Rationality: The Outsider's Mindset.

Overall, if anyone is looking to up their knowledge on principles of capital allocation, this book is for them. It's engaging with business history, insights and actionable takeaways.

The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

The Outsiders by William Thorndike Jr. is a master class in how to allocate capital. Thorndike profiles eight CEOs he calls "outsiders". Why outsiders? Because they think and act differently from most other CEOs.

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