#431 How Henry Singleton Worked

Henry 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 two, he developed technology that allowed allied ships to avoid radar detection. And in the nineteen fifties, 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 nineteen sixties and became one of history's greatest CEOs. Conglomerates were the Internet stocks of the nineteen sixties. 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 shares. That's nuts. 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 thirty years, and the annual compound return to his investors was an extraordinary 20.4%. If you had invested a dollar Singleton in 1963, by 1990, when he stepped down, it would have been worth a 180. Actually, Charlie Munger said that Singleton's financial returns were a mile higher than anyone else's, that they were utterly ridiculous. That's a direct quote from Munger. 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. So that's the end of Buffett's quote. 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 …