Speaker 1Henry 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 a guidance system that is still in use in most military and commercial aircraft. All of that before he founded the conglomerate Teledyne in the early 1960s and became one of history's greatest CEOs. Conglomerates were the internet stocks of the 1960s. A large number of them went public. Singleton, however, ran a very unusual conglomerate. Long before it became popular, he aggressively repurchased his stock, eventually buying over 90% 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. He was known as the sphinx for his reluctance to speak with either analysts or journalists. It turned out he was right to ignore the skeptics. The long-term returns of his better-known peers were generally mediocre. Singleton, in contrast, ran Teledyne for almost 30 years, and the annual compound return to his investors was an extraordinary 20.4%. If you had invested a dollar of Singleton in 1963, by 1990, when he stepped down, it would have been worth $180. Actually, Charlie Munger said that Singleton's financial returns were a mile higher than anyone else's, that they were utterly ridiculous. CEOs need to do two things well to be successful, run their operations efficiently, and deploy the cash generated by those operations. Most CEOs focus on managing operations. Singleton, in contrast, gave most of his attention to the later task. As Warren Buffett observed, very few CEOs come prepared for this critical task of capital allocation. The heads of many companies, this is a direct quote from Buffett, the heads of many companies are not skilled in capital allocation. Their inadequacy is not surprising. Most bosses rise to the top because they've excelled in areas such as marketing, production, engineering, administration, or sometimes institutional politics. Once they become CEOs, they must now make capital allocation decisions, a critical job that they may have never tackled and one that is not easily mastered. To stretch this 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. 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 the long-term return for his shareholders. Singleton had a highly differentiated approach. Specifically, he believed in an extreme form of organizational decentralization with a thin corporate staff at headquarters and operational responsibility and authority concentrated in the general managers of the individual business units. So then the book goes on to list a bunch of beliefs that Singleton had. So Singleton believed that capital allocation is a CEO's most important job. He believed that what counts in the long run is the increase in per share value, not overall growth or size. He believed that cash flow, not reported earnings, is what determines long-term value. He believed that decentralized organizations release entrepreneurial energy and keep both cost and productivity at the same time. He also believed that independent thinking is essential to long-term success, and interactions with the outside world can be distracting and time-consuming. He believed that sometimes the best investment opportunity is your own stock. He also believed that with acquisitions, patience is a virtue, as is occasional boldness. Singleton was frugal, often legendary so. He was profile COs such as Steve Jobs or Sam Walton or Herb Keller or Mark Zuckerberg. These geniuses were struck by enormously powerful ideas that they proceeded to execute with maniacal focus and determination. Singleton had a pragmatic focus on cash. In a rare interview in 1979, Singleton said, after we acquired a number of other businesses, we reflected on our business. Our conclusion was that the key was cash flow. Our attitude towards cash generation and asset management came out of our own thinking. It is not copied. That is the end of the Singleton quote. Here's a quote from Warren Buffett. And Buffett said, Henry Singleton has the best operating and capital deployment record in American business. If one took the 100 top business school graduates and made a composite of their triumphs, their record would not be as good as Singleton's. Singleton managed to grow values at an extraordinary rate across almost 30 years of wildly varying macroeconomic conditions. He did this, by continually adapting to changing market conditions and by maintaining a dogged focus on capital allocation. And then the book gives this quick bio of his early life. He was born in 1916 in a tiny town in Texas. Singleton was a highly accomplished mathematician and scientist who never earned an MBA. Instead, he attended MIT, where he earned a bachelor's, master's and PhD degrees in electrical engineering. Singleton programmed the first student computer at MIT as part of his doctoral thesis. And in 1939, he won the Putnam Medal, as the top mathematics student in the country. He was also an avid chess player who could play blindfolded. There's a great, a lot, a bunch of great anecdotes about his chess playing in both of these books. After graduation from MIT in 1950, he worked as a research engineer at North American Aviation and then Hughes Aircraft. He was then recruited by the legendary former whiz kid Tex Thornton to come to Lytton Industries. Singleton left Lytton in 1960 after it became clear to him that he would not succeed Thornton as CEO. He was 43 years old. This is really important. So now let's tell it. I'm one of the most successful people in the world. I'm one of the most successful companies ever created. Henry Singleton founded it when he was 43 and had never founded a company before. This is awesome. So he does this. He founds a company with his colleague, George Kosmetsky. And in July 1960, they founded Teledyne. They started by acquiring three small electronic companies and using this base, they successfully bid for a large naval contract. Teledyne then became a public company in 1961 at the dawn of the conglomerate era. For most of the 1960s, conglomerates enjoyed lofty P.E. ratios and used that currency, of their high-priced stock, to engage in a prolonged frenzy of acquisitions. During this heady period, there was significantly less competition for acquisitions than today. Private equity firms did not yet exist. And the price to buy control of an operating company, measured by its P.E. ratio, was often materially less than the multiple the acquirer traded for in the stock market, providing compelling logic for acquisitions. 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 CEOs. He did not buy indiscriminately, avoided turnaround situations, and focused instead on profitable growing companies with leading market positions, often in very niche markets. As Jack Hamilton, who ran Teledyne's specialty business, said: "We specialize in high-margin products that were sold by the ounce, not the ton." In 1967, in his largest acquisition to date, Singleton acquired Vasco Metals and elevated its president, George Roberts, to the role of president of Teledyne, taking the titles of CEO and chairman for himself. Once Roberts joined the company, Singleton began to remove himself from operations, freeing up the majority of his time to focus on strategy and capital allocation. Shortly after, Singleton became the first to stop acquiring other companies. In mid-1969, with the multiples on his stock falling and acquisition prices rising, he abruptly dismissed his acquisition team. Singleton 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. So this is something that's going to come up over and over again, the fact that he was willing to switch strategies depending on what was actually happening on the ground, and that he said repeatedly that he wanted to come to work every day and just steer the boat each day. That's the metaphor that he used. He reserved, he said, when he described what his job was, how he viewed his job, was just to act in the company's best interest every single day. 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 50 people in a company with over 40,000 total employees and no human resource or investor relations departments. Ironically, the most successful conglomerate of that era was actually the least conglomerate-like in its operations. Once the acquisition engine had slowed, Singleton then turned his attention to the company's existing operations. In another departure from conventional wisdom, Singleton eschewed reported earnings, which at the time was a key metric on Wall Street, running his company instead to optimize free cash flow. They devised a unique metric that they called the Teledyne return, which by averaging cash flow and net income for each business unit emphasized cash generation and became the basis for bonus compensation for all business unit general managers. Singleton said, "If anyone wants to follow Teledyne, they should get used to the fact that our quarterly earnings will jiggle. Our accounting is set to maximize cash flow, not reported earnings." The net result of these initiatives was, that, starting in 1970, the company generated remarkably consistent profitability across a wide variety of market conditions. I think at one point, I was reading this article, article that was really hard to find you actually had to find it on microfilm i think it came out like 1979 it's called uh the sphinx speaks and i think at that point the previous year he had i think 130 different business units and i think 129 of them were profitable this influx of cash was sent to headquarters to be allocated by singleton the decisions he made in employing this capital were not surprisingly highly unusual and effective singleton said 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'm going to announce a tender starting with that 1972 tender and continuing for the next 12 years singleton went on an unprecedented share repurchasing spree it is accurate this is a great line it is accurate to describe him as the babe ruth of repurchases prior to the early 1970s stock buybacks were uncommon and controversial the conventional wisdom was that repurchases singled a lack of internal investment opportunity and thus were regarded by wall street as a sign of weakness that's hilarious so the literally the best thing he could have possibly done at the time and they're saying he's weak for doing it singleton ignored this orthodoxy between 1972 and 1984 in eight separate tender offers he bought back an astonishing 90 percent of teledyne's outstanding shares as munger says this is a great line from munger no one had ever bought his shares as aggressively 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 generating exceptional returns in the process singleton bought his own stock extremely well and generated an incredible 42 percent compound annual return for teledyne's shareholders across the tenders before we get back into this i want to tell you about the presenting 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business on ramp i run my business on ramp and you should too go to ramp.com today to learn how they can help your business save time save money and grow revenue that is ramp ramp.com singleton had been fascinated by the stock market since he was a teenager and in the mid-1970s singleton finally had an opportunity to act on his lifelong fascination when he assumed direct responsibility for investing the stock portfolios at teledyne's insurance subsidiaries during a severe bear market and by now i don't think you'll be surprised that even the way he invests stocks is going to be unusual and done in his own manner singleton developed an idiosyncratic approach with excellent results he invested over 70 percent of combined equity portfolios in just 25 companies with an incredible 25 percent of his portfolio allocated to a single company which was his former employer linton industries this extraordinary portfolio concentration caused consternation on wall street where many observers thought singleton was preparing for a new round of acquisitions his top holdings were companies that he knew well whose p.e ratios were at or near record lows at the time of his investment as charlie munger said of singleton's investment approach like warren and me he was comfortable with the fact that singleton's investment approach was comfortable with concentration and bought only a few things that he understood well one of the most important decisions any ceo makes is how he spends his time and henry singleton's approach to time management was not surprisingly very different from his peers this is what he said 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 interest of the company at any time singleton did not believe in detailed strategic plans preferring instead to retain flexibility and keep his options open as he once explained i know a lot of people have very strong and definitive plans that they worked out on all kinds of things but were subject to a tremendous number of outside influences and the vast majority of them cannot be predicted so my idea is to stay flexible my only plan is to keep coming to work i like to steer the boat each day rather than plan ahead way into the future singleton's fierce independence of mind remained a prominent trait until the end of his life in 1997 two years before his death from brain cancer at age 82 he sat down with a long-time teledyne investor at the time a number of fortune 500 companies had recently announced large share repurchases when asked about them singleton responded if everyone's doing them there must be something wrong with them okay so that is an excerpt from one of the two books i'm going to read and i'm going to go back to this section in the outsiders where it actually compares uh warren buffett and henry singleton i found out about singleton many many years ago because i was reading everything i could get my hands on about warren buffett and then charlie munger and they kept bringing up this guy that they both greatly admired they said his returns were utterly ridiculous charlie munger said he was the smartest person he ever met and i since i studied munger buffett before i thought a lot of the ideas that they were using like were their ideas and i didn't realize many of them were actually done by singleton first and so the outsiders this is a great section comparing and really not even comparing just showing the similarities the remarkable similarities between warren buffett and singleton so it says many of the distinctive tenets of warren buffett's unique approach to managing berkshire hathaway were first employed by singleton at teledyne in fact singleton can can be seen as a proto buffett and there are uncanny similarities between the two and so i think william thorndyke gives us a great overview here says both buffett and singleton designed organizations that allowed them to focus on capital allocation and not operations both viewed themselves primarily as investors not managers both ran highly decentralized organizations with very few employees at corporate and few if any layers between operating companies and top management both made all major capital allocation decisions for their companies both buffett and singleton focused their investments in industries they knew well and were comfortable with concentrated portfolios of public securities neither offered quarterly guidance to analysts both provided informative annual reports with detailed business unit information both singleton and buffett recognized the potential to invest insurance company float to create shareholder value and for both companies insurance was the largest and most important business buffett and singleton intentionally ran highly unusual businesses that over time attracted like-minded long-term shareholders and then before i move on to the book disenforce i just want to pull out a few sentences from that interview the sphinx speaks says henry singleton has a tendency to watch the thundering herd then trot off in his own direction he is a rugged individualist late 20th century style he has a highly individualistic management philosophy okay so then what i did because really you know the title of this episode is really what i was interested in is like okay how did henry singleton work and i went through both books and then pull out all the highlights kind of removing anything else that's not about how he approached his work and how he built his company and hopefully you know there's some ideas in here that you and i can use so there's a highlight that actually comes towards the end of the book disenforce that i want to bring to the very beginning because i think it's a great description of teledyne singleton formed teledyne to capitalize on the coming revolution in which digital technology would replace analog devices and systems and everything that we could touch and imagine singleton wanted to apply semiconductors and digital technology to many fields of commerce and so one thing that i loved about him is the fact that he is a student of business history just like buffett just like munger just like you and i henry was much more than a salesman mathematician engineer inventor and chess champion he was a student an observer of the history of manufacturing of the progress and growth of corporations from the days of henry ford the growth of general motors and the manner of successful corporations and growing by acquisitions so this is a great description of singleton from somebody who worked with him for a very long time singleton brought exceptional brilliance to the creation and development of the enterprises he undertook few business leaders have possessed the combination of mathematical genius and engineering talent with the insights of a financial analyst and the management creativity of a tournament chess player and one of the most important ideas that singleton used to build his company is that and he called this his key to his success he just wanted to keep the most talented people around him singleton also believed and often said that the key to his success were people talent and talent and talent and talent and talent and people who were creative good managers and doers from the start he surrounded himself with that kind of person and so they described not only his co-founder but then one of his friends and who was on the board of uh tell down i think for like 26 years claude shannon who i just did another episode on a few weeks ago uh claude shannon was a friend and fellow student at mit he brought his own technical expertise and he became world renowned as a creator of the science of information technology in which modern digital computer technology is based now we're also dealing he's got a lot of great ideas but you you read both books you're like okay this guy's like an alien you think about it charlie munger said that this is the smartest person i've ever met think about all the world-class people charlie Munger met in his life. So Henry was actually ranked first in his class of 820 people in mathematics. He won the Putnam Award, which is one of the most prestigious and notoriously difficult mathematics competitions in the world. So there's all these like little sentences spread through each book that just give you an indication that we're dealing with something very, very unusual. One thing that I thought was very interesting, and I love these little anecdotes where some of other history's greatest entrepreneurs like interact with and wind up crossing paths earlier in their lives. Before Singleton started Teledyne, he actually works for Howard Hughes, and he talked about what that was like. And he says, I had the pleasure of demonstrating a pilot training fire control simulator to Howard Hughes one day. Henry later told me stories of meetings he had with Howard Hughes in evenings when they worked late. Howard would only come by to see us at night and always unannounced. He would ask what we were doing, and he always understood everything when we explained to him. He was a very fine man. Sorry, I mentioned this earlier, but he was interested in financial markets decades before starting Teledyne. Henry told me that how in the early 1940s and early 1950s, he spent days in the offices of brokerage houses, watching the stock ticker, thinking of how to get capital rolling efficiently and how shares are valued and traded. He thought about how companies with a steady growth rate were rewarded with an ever increasing PE multiple. Henry had become convinced that digital technology would be the dominant force in future developments in control systems and virtually every other electronic field, and that semi-conductive technology would be critical to future development in those fields. He felt it was important that Lytton should be able to find a way to enter the semi-conductor field in order to control the design of the components used in these control systems. 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And so Singleton talks about this conviction that he had. "We went into the semiconductor business in 1960, even though we were in the midst of a business crisis at the time. We did it because of our conviction that it was necessary for our long-term future growth, and not because of any conviction that we would immediately make huge amounts of money." And then he continues in this next paragraph, and in my opinion, you really see how his brain works here. "We decided that if we were going to manufacture, develop, and sell electronic control systems, we ought to have a capability in the component area. That would enhance our ability to design systems because we know more about new components we could use. On the other hand, our expertise in systems would enable us to better judge what kind of components to develop." And then the book breaks down the fact that Henry had three great ideas. These are the three main ideas that he built his company on. What I would like to emphasize here is that Henry had three great ideas in creating and growing Teledyne. His first was to recognize the future importance of digital semiconductor electronics when this technology was in its infancy, and by selective acquisitions create a strong base in this growing field on which to diversify his company. The second idea was to acquire and organize a selection of financial companies within his company to provide a strong financial base. The third was his innovative use of stock buybacks. These three things are equally important to remembering, considering, and continuing the story of Henry Singleton's accomplishments. Henry initiated his plan of growth through acquisition from the very first year of operation. And then I mentioned earlier how when you're reading both books, they'll just be these lines and these random lines in the books that you realize okay we're uh we're dealing with a very different kind of person. It says, "Henry had developed the talent of being able to play chess without seeing the board. One story relates that Henry was playing chess with tech with his back turned to the board and tech was telling him what move he made. Suddenly during the match, Henry said, "Tech, you told me the wrong move three moves back." And then in this one conversation, Singleton describes what his goal for creating Teledyne is. He says, "At his first meeting with Henry, Jay Last recalls asking him, 'Are you trying to create another Lytton?' 'Hell no,' Henry replied. 'I'm trying to create another GE.' Which explains why Henry's choices of companies to acquire gradually became more and more diverse. Later, he would look afield to companies that were less and less related to his original electronics, government, and military markets but would diversify and contribute to the profitability of his company. Many years later, Henry said, 'Teledyne is like a living plant with our companies as the different branches and each putting out new branches and growing so that no one business is too significant.' And Singleton's strategy created this kind of flywheel and they describe it here. It is quite interesting how Teledyne's technologies actually did expand like a branching tree. With each new technology opening the way into other related technologies, and these into still others. In many cases, when managers of the individual companies saw opportunities in related fields, they themselves recommended acquisitions to us of other suitable companies. So they give an example of how this can kind of, as the tree grows, you kind of branch yourself and grow into these other related industries. And this is the description, "Our geophysical capabilities and seismic products led us into the field of oceanography and offshore petroleum exploration, where seismic techniques are used to profile the geological strata of the bottom of the sea to uncover likely places to which we can drill oil wells. This led to further expansion of Teledyne's activities in the petroleum industry." And this is what I mentioned earlier, Teledyne divides its business into 130 profit centers and only one of the 130 lost money last year. And if you can get your hands on the book, it's out of print, it's really hard to buy, but there's a bunch of information. It's almost like miniature biographies of each company that they're involved in. They don't cover all 130 of them, but they go into a lot more detail than obviously go into here. So in case you're interested, try to find a copy of this book. I highly recommend it. So then another thing that Henry talks about over and over again, talks about talent management started, I think it's already mentioned a few times in the podcast where he said it was like the key to success. He's got some very interesting ideas here too. He was also very interested in the managerial talents of the owners and managers of the businesses that he acquired. Whenever possible, Henry wanted these people to stay on with Teledyne as managers of their own operations, since they were the most knowledgeable about their fields, their markets and their production technologies. And this is what he says. We have what is called a management inventory. We work our heads off to increase our own capability at collecting and promoting the right people. To the extent that we succeed, the whole company will succeed. That's something he repeats over and over again. We increase our bets on the men who seem to be performers. And so that's another thing where as long as you're hitting your numbers, you're running your business, you didn't even, you didn't have to talk to him. He would just leave you alone. He would, I think he says that a couple of times, like, oh, they're doing the job. Why don't you just let them be? We try to get all of our people instead of competing among, this is still Singleton speaking here. We try to get all our people instead of competing amongst each other within Teledyne to look outside and see that the real competitors are all the other large corporations in the US. Our objective is to increase our rate of earnings faster than they do. It is a lot of fun. And as a result, we visualize it as a competitive game. So they go back again, all these highlights, these, these will appear on separate pages. They just repeat the same ideas over and over again, that we want to keep demonstrated talent and expertise. We always hope that the owners or managers of these companies would stay on and continue to manage their operations. And most did. Many of them had started their companies 20 or 30 years earlier and had managed them into the successful and viable businesses that had attracted our attention in the first place. Some of them were ready to retire. In those cases, we asked if there was a relative who knew the business and who could take over and manage it. So sometimes another top executive or some of the best technical people accepted the job. These men knew more about their specific businesses than we did, and we wanted to keep their expertise. We had no intention of managing the businesses at the corporate level. Now, they did. This is the way they got information from those businesses. We did establish our own unique financial and operations reporting system, which enabled us to monitor their performance closely on a monthly basis and see any trouble spots before they became serious. Another principle of the way that Henry Singleton worked, especially when he has conviction, he moves fast. So just during a three-year period from 1966 through 1969, they acquired 90 more companies. Another thing that Henry repeated over and over again, did not like to waste time. I think this great, this like two sentences gives you an idea of this, describing what a meeting with Henry Singleton was like. Our first meeting was brief, but it was the one in which each of us spoke with complete candor, and that became the basis of our lasting relationship. All of our meetings were short, but they were very effective. So he didn't like to waste time. He also did not like to waste money. One humorous story of those early days, Henry would call me and invite me to have lunch with him. We always went to a poker parlor because the lunches were inexpensive. When it came time to pay for our lunches, Henry would always have me pick up the check. He was continually teaching me the value of frugality by not inviting me to an expensive restaurant. He said some crazy shit too one time where it's just like, they need company cars. He's like, okay, well, let's get everybody. Uh, a Ford Pinto. And I think some of the guys on staff were like, Pinto is a tiny car. I wound up having a bad, uh, bad, uh, like reputation. Cause it would, I think if you run it, ran into it behind it, like blow up, but only that, like it's so small that most of the adult men couldn't fit in it. So if you were like six foot or six, two, it's like, you couldn't squeeze in there. He's like, well, what's wrong with that? And so that, that story was funny too. And so in addition to not liking to waste time, not liking to waste money, he expected you to know your business from A to Z. One of my favorite maxes in the history of entrepreneurship comes from this guy named Sam Zamuri. There's this fantastic biography of him called the fish that ate the whale. This is a line for that. He said that if you know your business from A to Z, there's no problem you can't solve. And so he's telling the author of the book, he goes, Hey, I want you to go meet this guy named Russ. He's a unique fellow. And so he goes, okay, well, what's unique about him? And, and, and singleton response. What's unique about him is that I'll ask him a question about one of these companies that I've asked him to supervise. And he always knows the exact numerical answer. If I ask him what they did in sales last month, he knows right away without calling someone to find out that's the kind of fellow that I want to meet. And so he goes, Hey, I want you to go meet this fellow that you pick who runs a company and does it well. That is the kind of group leader we need. Then it goes back to another one of their principles that they repeat over and over again, that you should be breaking there. They believed in breaking your companies down to the smallest units possible. Our contention was that smaller units gave management better control and made the local manager fully responsible for the success of their own operations and motivated them to perform well. Our policy of keeping our operating units small, each responsible for its own success is something we followed throughout the history of the corporation. Another thing that singleton would do, he would cut his losses and move on. He says, we acquired Packard bell for 16.5 million in common stock. And we assumed 5.5 million of their debt. It was a profitable addition to our company for many years, but eventually competition from Japanese television manufacturers became too severe. Henry was never shy about cutting his losses. And we simply got out of that business and got into the world of television and closed the television operation. Then it goes into the fact that, you know, for the first decade, there's all these likes, it's almost like they're the history of Teledyne change decade by decade. So for the first decade in the 1960s, they were just acquiring about, you know, a hundred over 130 companies. And then in 1969, they stopped acquiring companies completely. And so they, they described why they made that decision. By 1969, Henry decided the prices for other companies we might be interested in were getting too high. This was partly due to increasing competition for these companies in the business sector, but also because of the fact that we were growing in the same way that we were. Many of the better companies had already been acquired and there were fewer companies that were really attracted to us. Companies began asking more than we thought was reasonable. Contributing to our decision was the fact that a business recession was occurring at the time and growth in earnings per share was declining and the stock market was depressed. And since we had already acquired 150 companies, Henry decided it was time to organize and consolidate what we had. And then they talk about their shift in strategy, where they went from buying entire companies to just buying pieces of them, in the stock market. So by 1970, as we began our second decade, we had stopped our direct acquisition of companies. We decided there was no point in paying inflated prices for complete ownership of companies when we could buy a substantial interest in them through our insurance companies when the market prices were favorable. And you're going to see here when Henry talks about this, he sounds a lot like Buffett does in his shareholder letters. And so it says, uh, Henry was quoted about his philosophy in regards to this. There are tremendous values in the stock market, but in buying stocks, not entire companies. Buying companies tends to raise the purchase price too high. Don't be misled by the few shares trading at a low multiple of six or seven. If you try to acquire those companies, the multiple is more like 12 or 14 and their management will say, if you don't pay it, someone else will. And they're right. Someone else does pay it. So it's no acquisitions for us while they're overpriced. I won't pay 15 times earnings. That would mean I'd only be making return of six or 7%. I can do that in T bills. We don't have to make any major acquisitions. As for the stocks we pick to invest in the purpose is to make as good as a return as we can. We do not have any other intentions. We do not view them as future acquisitions. So let me interrupt this quote from Singleton because at the time they thought, oh, this guy's a serial acquirer. He bought, you know, 150 something companies, whatever the number is. He's just doing this as a way to find more acquisitions. They just may be bigger. And he's like, well, we're not actually viewing them as future acquisitions. He says, buying and selling companies is not our bag. Those who don't buy and sell are not our bag. Those who don't buy and sell don't believe me are free to do so, but they will be as wrong in the future as they have been about other things concerning Teledyne in the past. And so that is the end of the quote. It's another great quote, our story rather in the book about how, again, he just said, Hey, go meet this guy. He knows the business from A to Z. You ask him how the sales of any division is. He knows it right off the bat. Singleton was obsessed with details. And so there's this great quote from Walt Disney I love where it says, if we lose the details, we lose everything. And here's a story that kind of goes back to that. He's like, I don't even know what I'm talking about. I don't even know what I'm talking about. I don't even know what I'm talking about. I don't even know what I'm talking about. Jay told me that one day he happened to walk past the open door of the PR department and looked in to see Henry Singleton sprawled on the floor with some large drawings debating the exact design, shape, and proportions that make up the Teledyne logo type. He is telling you with his actions that he's paying attention to every single little detail. Goes back again, talks about his preference for autonomy, says this over and over again. We really wanted our companies to operate with considerable autonomy, and this placed a tremendous burden on our individual company presidents. Henry said, we depend on them. We have to trust them. We succeed or fail according to what they do. This was completely in accord with Henry's strong conviction that people were the most important factor in a business. How many times has he repeated this? Again, this is going across. This book is what, 300 and something pages? And that idea is repeated over and over and over again. In fact, it's people are the most important factor in a business, and they had to be given a chance to do their job. Direct quote from Singleton. Why bother them if they are doing their job? Goes back to this idea of, you know, if you're going to do your job, he doesn't give a shit what you think of his strategy. The press gets everything wrong all the time. The fact that, oh, he went from acquiring all these companies. Now he's just buying stocks. But this is just a guy. He's going to actually, you know, he's going to do hostile takeovers and acquire them. Not only is he not going to acquire them or do a hostile takeover. And by 1977, Teledyne was the largest shareholder in nine of the Fortune 500 companies. He didn't even want a board seat, much less control. He says, we actually held enough shares, six of these corporations to effectively have control over them. But Henry never exercised that capability. He never even attempted to seek a position on the boards of those companies. For a long time, there was considerable speculation that he was planning to take over these corporations. And this may have caused unease in some of the managers. In fact, Henry went out of his way to assure those managers that he had no such intentions. And so he was the largest shareholder of this company called Curtis Wright. And even when he was the largest shareholder, this is what a spokesman of Curtis Wright said about Singleton. Absolutely scrupulous in staying out of our affairs that many didn't believe him was an indication of how little they knew of Henry's integrity and determination to follow his own course. One way he followed his own course, he comes up with this thing called the Teledyne return. We developed a measure that we called the Teledyne return, which was the average of your cash return and your profit. We would tell an individual business unit, for example, you reported a profit of a million dollars, but you only had half a million dollars of cash. So you only made half a million dollars of cash. So you only made half a million dollars of cash. You only made $750,000. That's a Teledyne return. So you only made $750,000. So tell us about the rest of the profit when you get it. And I actually read a great description of this because I think this is confusing to some people. So let me just give you some additional notes on the Teledyne return. So it was a net income plus cashflow divided by two. The important insight was that Singleton didn't want managers optimizing purely for accounting earnings. A division could report a million dollars in profit, but if it only produced $500,000 of cash, Singleton considered the economic return of the company to be $500,000. So Singleton didn't want managers optimizing results substantially worse than the income statement suggested. So this is why Singleton invented the Teledyne return. Teledyne consisted of dozens of decentralized businesses. Singleton wanted to give the managers enormous operational autonomy while still having one number at headquarters that told him whether they were actually creating economic value. This metric became a key basis for evaluating and compensating Teledyne's business unit managers. It also Boosting reported earnings by consuming working capital. A manager could increase sales and earnings by piling up inventory or extending generous credit to customers, but cashflow would deteriorate. The teledyne return would expose that this fits Singleton's larger philosophy perfectly. The subsidiaries existed to generate cash and Singleton's job was to allocate that cash. So another thing about Singleton, and I love this, this is probably one of my favorite quotes in the book. So this happens in two paragraphs, which I think is interesting. One, say over and over again, like some of the best founders, best managers, they're just teachers. They have this unique philosophy, which we've, you and I've been talking about, you know, for quite some time now. And then they just spend their time teaching their entire organization, the way they want the business run, why they're doing what they're doing, how the actions that these individual business unit managers are affecting the outcome of the entire company and so on and so forth. And so he would actually, you know, a lot of people don't have one-on-ones here, but there's a lot of examples of just in the books where Singleton is just pulling people aside one-on-one and just essentially having teaching. Whether it's over coffee, whether it's at the lunch at the poker parlor, whether it's in his office, whether he's laying on the floor. So it says quite often, Henry simply talked about his philosophy of running a corporation and the various financial strategies that he came up with as he sat in his corner office each day, often working alone at his Apple computer. He was a brilliant business strategist, and he came up with many creative ideas, ideas that were sometimes contrary to the currently accepted methods of managing a large corporation that prevailed in those days. And then you have a great line. This is my second favorite part of this, this paragraph where Claude Shannon is telling, you know, bad boys move in silence. This is a direct quote from Shannon, Claude Shannon on Henry Singleton. He always tries to work out the best moves, and maybe he doesn't like to talk too much because when you're playing a game, you don't tell anyone else what your strategy is. And then I just love this quote from Singleton. It's like playing golf. Anyone can swing a club, but some of us do swing it better than others. And then another thing that Singleton would repeat is that he found short-term thinking repulsive. He said, we are not particularly persuaded by quick temporary gains. We'd rather get something permanent. And that takes time. If there's anybody who wants us to do something real fast, that's going to be astonishing in terms of increased earnings or something. I don't know how to satisfy such desires. When pressed about spinoffs being a good way to boost shareholder value, he replied, you're thinking in the short term, I'm in the long term. So I wouldn't do anything like that for a temporary rise in the price of the stock. You know, there are companies that will sell one division and buy another because this is a good way to boost shareholder value. This division generally sports a low multiple and the one they're buying has a high multiple. And they think this may rub off on the whole company. That absolutely turns me off. The whole concept is repulsive. We don't do things like that. We look at the economic long-term possibilities. And then something also interesting about Henry Singleton, it's like when he dies, I think he's the third largest landowner in the United States at the time. He had this also, another love of real estate. In fact, the book says that he never sold, a single piece of real estate, whether it's a house or his ranch or just empty land in his entire life. He just kept acquiring them. And so after he retires from Teledyne, he spends the remaining, I think like 10 years of his life, maybe something like that, just working on his ranch. And one of the interesting parts is his daughter writes a book later on in life where how her father ran the ranch. And you see there's a lot of similarities between what he did with Teledyne and what he did with Singleton. And he would insist on writing every check that every single expense, he wrote the check for the ranch and he called it a form of discipline. And he talks about the importance of watching every dollar. He pays all the ranch bills and signs all the checks, calling it a form of discipline. Through doing the signing, it's amazing how much you learn about the business. There's a reminder of each event or action behind every check. And then what I did after finishing both books is I organized another section where it's actually Munger and Buffett on Singleton. And there's just some interesting ideas in here. And I'm going to show you a little bit of here. So it says, sharing Buffett's admiration for Henry Singleton, Charlie wondered, I think this was at one of the Berkshire meetings, given the man's talent and record, have we learned enough from him? Buffett said that Singleton had, quote, the best operating and capital deployment record in American business. He went even further, saying that if you combine the achievements of the top 100 business school graduates, their collective record would not match Singleton's. Buffett also called it a crime that business schools did not study Singleton. Charlie Munger said Henry Singleton was very interesting. He was a lot smarter than Warren or I. Munger also said we respect Henry Singleton for a very simple reason. He was a genius. Munger called Singleton an awesome intellect and estimated his raw intelligence as being in the top one one thousandth of one percent. Munger said Henry Singleton was the smartest single human being I've ever known in my entire life. But this is very fascinating. This is why I wanted to include this section, because there was a distinction that Munger drew between raw intelligence and accumulated experience. And so he, since he had an up close view of both Buffett and Singleton, he concluded Henry was a lot smarter, but Warren had thought about investments a lot longer. So think about it. Singleton doesn't start his company. So there's like 43 doesn't really start investing all the cash. Let's say he's in his 50s and he does that for another 20 years. So maybe from like the age of 50 to 70, where Buffett started at nine and is still doing it in his 90s. I love the way that Munger drew that distinction between raw intelligence and time. And so then I want to end this session with this beautiful eulogy that is printed at the end of Distant Force that gives a deep insight to Henry Singleton, the man from somebody who knew him well. Rarely do you meet a total stranger and instantly know that you will come to admire that person. That happened to me when I first shook hands with Henry Singleton. It was half a century ago at MIT where I came to recruit doctorate degree graduates in engineering. The dean at MIT gave me the records of all the graduates and a photo of each. The graduates all looked the way the engineers looked at them. And so I was like, well, that's what engineers usually do. Except one. He was really good looking and something else. His grade chart was particularly crowded. All the other graduates' grades were like 80 or 90. They were two digits. Henry Singleton's grades everywhere were a hundred. Three digits squeezed into the space for only two. For every course he took, every final exam, 100. Perfect. While the other graduates wanted to deliver prepared recitals of their accomplishments, Henry asked me questions. What were we up to in Southern California? Why? And why are you doing it there? And how did your projects come about? Henry accepted our offer, came West and began an engineering career. Had he chosen to remain in engineering, his career most certainly would have been a distinguished one. But an unexpected opportunity turned up that triggered and uncovered a surprising dimension of Henry's makeup. To create a new company that would find, acquire, merge and manage other companies. Here he exhibited extraordinary talents. Even he could not have fully known he possessed. As CEO, he now applied his powerful analytical strengths in novel ways to research and assess the true values of companies, their stock prices, their competition, their profit and growth potential. With his standup desk and his computer, he became a tree full of wisdom of corporations and markets. Henry was not your ordinary CEO. He constantly frustrated the world of Wall Street and business media by ignoring the world of technology. By accompanying his phenomenal business success with a preference for anonymity, he mystified them. Not surprisingly, as his talents and analytical business decisions became known, many assumed he was a pure numbers guru, not interested in the people factor in investments. That's not true. And I can cite an example. Years ago, technology advanced suddenly made possible low priced, high powered computers that millions could buy. Numerous companies were started to produce them. Most failed. Not the one Henry helped to finance. He invested in Apple. I asked him, "How, with all these new computer startups looking alike, did you pick Apple?" He replied, "Well, I figured most of these millions of expected potential computer customers would at first be intimidated by computers. But how could anybody be intimidated by a computer named Apple? Besides, all the others except Apple, if they failed, would just walk away." Apple's founders just had to make good. Apple's founders just had to make good. All of us who knew Henry well felt the warmth of friendship and sincere consideration underneath his mane of reserve. If in his passing we now feel a sadness, this is perhaps a proper price that we must pay to compensate for the enrichment of our lives that knowing him has yielded us.
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