Editor’s Note: This is the 22nd review in our Get Paid to Read contest series!
Our last review was of the book More Money Than God. Be sure to check out our Reading List section here for more!
This week, we spotlight The Outsiders, reviewed by Akshay who runs the Manana Investing substack and can also be found on X here.
I first came across this book being discussed on X (Twitter) by a few accounts whom I respect and have followed for years. I bought the audiobook format to enjoy while driving through Banff and Jasper in Alberta, Canada, and I enjoyed it very much! (My wife, not so much; she prefers music).
The author of this book, William Thorndike, thought the best in business are not studied as closely as in other fields, and wants to show the readers how the best CEOs allocated their time, capital, and resources to beat their peers handily.
The book goes into the details of how 8 unconventional CEO’s got ahead of their peers over time. All of the CEOs mentioned in the book arrived at their management philosophies independently, and it is quite remarkable how similar the key attributes to their success were:
The 8 CEO’s and their companies mentioned in the book are:
1. Tom Murphy and Capital Cities Broadcasting: This one is a banger; it shows how excellent operators truly think of the company as their own and treat shareholder money as their own. One of the main things that has stuck with me was the story about a bartender buying stocks in the company and making a handsome return. The reason why the bartender bought the stock has stuck with me; there are always little details/signs of an excellent management team!
2. Henry Singleton and Teledyne: I had heard about Henry Singleton quite a few times before reading the book but was pleasantly surprised by how very few companies/management before him bought back shares and almost none at this magnitude. I was truly surprised to know that in the early 1970s, share repurchases were even considered controversial, as they signalled the companies did not have any internal growth opportunity. I love share repurchases, especially when shares are undervalued, so this chapter is probably my favorite!
3. Bill Anders and General Dynamics: This chapter really shows how good management focused on shareholder value will not hesitate to shrink the business to be profitable. When Bill Anders became CEO, the company had negative cash flow and high debt. He transformed the company over time into a cash flow-generating business. His turnaround strategy took into consideration the industry dynamics (supply vs. demand) and also focused on what the company was good at.
4. John Malone and TCI: I am no fan of the metric “EBITDA”, I have seen many companies use this and the Adj EBITDA figure, especially when true cash flows are prob less than 20% of the metric, it makes no sense to me. Yet, I liked this chapter. I believe the EBITDA metric when coined was to show the cash flow generating capacity of a business when the GAAP Net Income didn’t and it is unfortunate how the metric is currently being used. This chapter also shows how a decentralized operation with clear goals will work wonders for a company.
5. Katharine Graham and The Washington Post Company: Katharine Graham was thrust into the role of a CEO after the unexpected death of her husband. From the time of the company’s IPO to when she stepped down as chairman, the compound annual return to shareholders was an excellent 22.3%! Buffett was a shareholder of the company as well! Also, there is a new documentary on Amazon Prime about Katharine Graham and it is on my list to watch!
6. Bill Stiritz and Ralston Purina: Similar to Bill Anders of General Dynamics, as soon as Bill Stiritz became CEO he focused on the company’s core operations and reorganized the company towards these profitable businesses. He divested businesses that did not meet his profitability and return expectations. When the company’s shares were undervalued he did share repurchases, and he also spun off businesses to shareholders as a tax-efficient way of returning capital. He used all the right tools in his toolbox to deliver exceptional results to his shareholders.
7. Dick Smith and General Cinema: Similar to Katharine Graham, Dick Smith was thrust into the role of CEO after the sudden passing of his father. He managed the company as if it were a privately held company with great patience and diversified the company’s businesses into different business lines over time. He understood the Drive-In cinema business was a mature industry and had the foresight to move into other business lines.
8. Warren Buffett and Berkshire Hathaway: Most of us would have heard about Warren Buffett, this chapter goes into the early days of Berkshire and how Warren pivoted the business to other areas. To anyone who has followed and read about Warren Buffett, nothing in this chapter would be surprising, but reading this chapter along with the previous ones will help the readers pick up the common traits of excellent, shareholder-friendly management.
I think this book is an excellent read to understand how these unconventional CEOs created shareholder value over a long time. My goal from reading this book is to identify the next 8 superstars of my time!