The Outsiders
William N. Thorndike Jr.
Summary
This book looks at the careers of 8 great CEOs throughout the 1900s who created more value for their shareholders than any other CEO. Businesses ultimately come down to the people who run them and these ones were the best over decades.
Rating: 3/5
Notes
CEOs are capital allocators and investors
Cash flow not earnings determines value
Independent thinking is essential to long term success
All had offices away from epicentres. Focus on small hubs
All had values like frugality, humility, independence and combo of conservatism/boldness
Key to longer term value creation is optimize cash flow, not earnings
‘The goal is not to have the largest train, but to arrive at the station with the least fuel’
Decentralization is the cornerstone. Let managers think for themselves
Look for talented younger foxes with fresh perspectives
Henry singleton and teledyne
- Share repurchases in large amounts when the stock is too low
Cash return on capital is the key metric
At their core, rational, pragmatic, agnostic and clear eyed
Most CEOs grade themselves on size/growth, but the important is shareholder returns
Malone and TCI (John malone)
- Ignored EPS and used pretax cash flow to grow and acquire subscribers
- He invented the term EBITDA
- Never paid significant taxes
- Bought and sold companies through stock instead of cash to avoid cap gains
‘Establishing and maintaining an unconventional approach requires frequently appearing imprudent in the eyes of conventional wisdom.’ - David Swanson
Stintz used cash for share repurchases or acquisitions
Smith (CEO of Cinemas) used cash earnings (net earnings + depreciation), not net income when evaluating a business
Buffet’s 3 approaches: cheap capital generation, capital allocation and management of operations
Portfolio mgmt: how many stocks an investor owns and how long he owns them
- High degree of concentration and extremely long holding periods
Always do the math, the denominator matters
Feisty independence/charisma is overrated
Crocodile-like temperament that mixes patience with occasional bold action
Long term perspective
Didn’t like dividends, disciplined and sometimes large transactions, used leverage selectively, bought back stock, minimized taxes, ran decentralized organizations and focused on cash flow over reported net income
Outsider checklist
- Allocation process should be CEO led
- Start by determining the hurdle rate - minimum acceptable return on investment
- Should be determined in reference to other opportunities and be in mid teens or higher
- Calculate returns for all internal and external investment alternatives and rank them by return/risk. Use conservative assumptions
- Projects with higher risk (acquisitions) should require higher returns
- Calculate return for stock repurchases. Require the acquisitions, returns meaningfully exceed this benchmark
- Focus on after tax returns and run transactions by tax counsel
- Determine acceptable, conservative cash and debt levels
- Consider deceentralized organization model
- Retain capital in the business only if you have confidence you can generate returns over time that are above the hurdle rate
- Consider a dividend but be careful (tax inefficient) if you don’t have high ROI projects
- When prices are high, consider selling a business or stock
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Make Something Wonderful
Steve Jobs
Summary
The life of Steve Jobs in his own words
Rating: 5/5
Notes
Make something wonderful and put it out there
‘You appear, have a chance to blaze in the sky, then you disappear’
When you’re a stranger in a place, you notice thing you don’t otherwise (Jobs after India trip)
Whenever you start with nothing, always shoot for the moon. You have nothing to lose.
You never achieve what you want without falling on your face a few times
Never be afraid to fail. You never achieve what you want without falling flat on your face a few times
We are never taught to listen to our intuitions, to develop and nurture them. But if you do pay attention to these subtle insights, you can make them come true
Creativity equals connecting previously unrelated experiences and insights others don’t see
Believe that some of what you follow with your heart will come back and make your life richer. And it will. And you will gain even firmer trust on your instincts and intuitions
Make your avocation your vocation. Make what you love your work.
The journey is the reward. The reward isn’t in the pot of gold at the end of the rainbow, it’s in crossing the rainbow
To find A+ talent, if experienced, look at their track record and results
The world we know is a human creation and we can push it forward
The people who are crazy enough to think they can change the world are the ones who do (read whole ad ‘here’s to the crazy ones)
We are what we repeatedly do. Excellence then is not an act but a habit - Aristotle
Hire people better than you are
You can’t plan to meet the people who will change your life
It’s impossible to connect the dots looking forward, but they make sense looking backwards so you have to trust the dots will somehow connect in your future
Everything around you that you call life was made up by people no smarter than you
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