Most people consider Warren Buffett the king of capital allocation, but Buffett considered Henry Singleton the king.
Singleton built one of the most successful conglomerates in American history, transforming business while remaining virtually unknown. He quietly turned the industrial conglomerate Teledyne into a business juggernaut with 20.4% annual returns over nearly three decades.
Charlie Munger said Singleton had “the best operating and capital deployment record in American business—bar none.”
This episode will teach what made Singleton special and give you ideas you can use in your life and work.
Listen now: Apple Podcasts | Spotify | Transcript
Lessons from Singleton:
- Outcome over ego. While Singleton built a large company, he never cared about size for its own sake. Instead, he focused on per-share value.
- A fiercely independent mind. Advantageous divergence comes from going against the crowd and being right. The only way to get there is independent thinking.
- Ignore conventional wisdom when it doesn’t make sense. Singleton’s approach to running Teledyne was to basically ignore everything that others were doing. He was decentralized, never split the stock, avoided analysts and their opinions, and issued and repurchased shares in a way that has never been replicated since.
- The courage to be disliked. Singleton was indifferent to criticism when the math was on his side. While a lot people structure their entire careers (and belief systems) to avoid criticism, Singleton made decisions from the bottom up based on reason.
- The right grip. Singleton believed in ideas but was never dogmatic about them, saying “I reserve the right to change my position when the facts change.” And he did it. When Teledyne stock was expensive, he used it as currency to acquire companies. When the stock later became cheap he switched to repurchasing shares, ultimately retiring over 90% of Teledyne’s outstanding shares.
- There are riches in niches. He bought specialty outfits that sold “by the ounce, not the ton,” locking in pricing power where giants ignored the space because it was “too small.” (This is a great example of how Singleton’s focus on per share value and not headline revenue or gross profits allowed him to focus where there was weaker competition.)
- Find the right people and let them work. “Singleton believed, and often said, that the key to his success was people-talented people who were creative, good managers and doers. From the start he surrounded himself with that kind of person.”
- Overmatch. Not only was Singleton an outlier, but he hired incredibly smart people who brought an uncommon analytical depth and approach to markets where most decisions were made by conventional thinking. It was as if a a team of chess-masters showed up at a local tournament to play against weaker competition.
- Focus on what matters. Singleton stripped away complexity, focusing only on what mattered. Whether it was cash returns or per-share value, he identified the metric that truly mattered and optimized for it relentlessly, ignoring traditional status symbols and vanity metrics.
- All decisions are opportunity cost decisions. Singleton compared all options against each other. “I won’t pay 15 times earnings,” he said. “That would mean I’d only be making a return of 6 or 7 percent. I can do that in T-bills.” Every capital allocation decision was measured against alternatives.
- Accountability with autonomy. Subsidiary presidents ran their shops, but were graded on “Teledyne Return” a made up metric that was hard to game, consisting of half cash, half GAAP profit. Creative accounting had nowhere to hide.
- Avoiding stupidity is easier than seeking brilliance. Success often comes from avoiding mistakes rather than making brilliant moves. As George Roberts said, “The only way to make money in some businesses is not to buy them.” There are no points for difficulty.
- Gradually, then Suddenly. It can be hard to understand that all the progress of compounding comes at the end. While the progress never looked fast enough in the moment, over the decades it accumulated. Patient holders captured the upside.
- The primary job of the CEO is capital allocation. Singleton understood that the primary job of the CEO was capital allocation and not operations. This mindset led him to three great ideas that built Teledyne: recognizing the future of digital semiconductor electronics when it was nascent, acquiring financial companies to provide a strong capital base, and pioneering the use of stock buybacks to enhance shareholder value.
- Circle of Competence: Singleton knew a few things really well and stuck to that. With the insurance float, he “invested over 70 percent of the combined equity portfolios in just five companies, with an incredible 25 percent allocated to one company,” his former employer, Litton Industries.
- Study History: More than just a mathematical mind, engineer, tournament-class chess player, and inventor, Singleton was “a student and an observer of the history of manufacturing. He studied the process and growth of corporations from the days of Henry Ford to General Motors and how successful corporations grew by acquisitions. He studied the behavior of Jimmy Ling and others who were beginning to grow in this manner. He studied the Littons, the TRWS, the Gulf and Westerns, and today’s largest of all conglomerates, General Electric. Henry told me how he had, in the ’40s and early ’50s, spent days in the offices of brokerage houses in New York and elsewhere, watching the ticker, thinking on how to get capital rolling efficiently, how shares are valued and traded, how companies with a steady growth rate are rewarded with an ever increasing price/earnings multiple.”
Sources
The research came from Distant Force: A Memoir of the Teledyne Corporation and the Man Who Created It, with an Introduction to Teledyne Technologies by Dr. George A. Roberts with Robert J. McVicker, and The Outsiders by William N. Thorndike, Jr. Additional information came from this 1979 Interview with Forbes.
