Notes from Invest Like the Best: Will Thorndike


About Will: Author of The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

  • Case study of 8 CEOs he viewed as masterful capital allocators. They had very diverse backgrounds despite operating in similar fashions

Warren Buffet (Berkshire Hathaway)

Henry Singleton (Teledyne)

Bill Anders (General Dynamics)

John Malone (TCI)

Tom Murphy (Capital Cities Broadcasting)

Katharine Graham (Washington Post)

Dick Cinema (General Cinema)

Bill Stiritz (Ralston Purina)

    • Malone and Singleton were mathematicians. 4 had engineering degrees, only 2 had MBAs.
    • 1/2 of them were CEOs under age 40, they were all first time CEOs
    • They were not visionaries or charismatic. Minimized time on investor relations or simply ignored it
    • Tax savvy and efficient
    • They were emotionally cool, pragmatic, highly analytical and opportunistic as opposed to having an opinion about the way things should be.
    • Strong operational acumen often with a key deputy or partner
    • 5 Ways a CEO can allocate capital and observations from the CEOs profiled. (Good capital allocation looks a lot like value investing)
  • How they approached their capital allocation decision set
    1. Dividends
    • Tax inefficient (double taxation). These CEOs cut against the grain and didn’t pay them or paid little
    • The exception was special one time dividends which usually coincided with pending tax law changes
    • From 2000 to 2012 dividend rates were lowest in history despite enjoying a tax advantage. Since 2012, dividend rates have increased despite the law actually making them far more expensive. The companies which paid special dividends before the Jan 2013 law change self-selected for being especially tax savvy.
    • Since 2009, a high dividend yield no longer correlates strongly with other measures of cheapness (P/B, PE, etc).
    1. Acquisitions
    • Other than Malone, acquisitions were sporadic, rare and very large. The logic for them would generally be rooted in the ability to scale costs effectively.
    1. Cap-ex
    • Very analytical and disciplined. ROIC guided their decisions. Often having quantitative filters for screening projects early (the idea of ‘funneling high’)
    • To combat managers from ‘teaching to the test’ as far as showing projects which met the predefined hurdle rates, there was a decentralized budgeting process which would audit and evaluate investments to impose accountability retroactively.
    • They were not strictly wed to long term plans and far more flexible and reactive to the ‘cards dealt’
    • Lean operations, choosing to focus on expenditures on their end product whether it was goods or media content

4. Pay down debt

    • They had a strong sense of what band their leverage ratios (debt to EBITDA, ie 3x or 4x) should be to balance returns through variations of the business cycle

5. Buy back stock

    • Singleton was pioneer in buying back large chunks of the float at opportune times, capitalizing on cases where the market had underpriced his company. This contrasts with the current trend of systematic buybacks. He would use tender offers.
    • When the stock got frothy he who would issue shares
    • All Outsiders except Buffet utilized this strategy

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