#431 How Henry Singleton Worked

**David Senra** (0:00)
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 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 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 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. 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 have 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 is 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 is 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 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 believes 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 ranker down.
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 analytical and understated. Singleton was very different from other high-profile CEOs 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.
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.