How Henry Singleton Worked

Key Takeaway

Make one capital-allocation decision today: list your available cash, time, or attention, then compare its highest-return use against reinvesting in your own strongest asset. Singleton avoided fashionable moves and acted only when prices and expected returns justified it. Apply the same discipline by pausing a low-value project, funding what already works, and tracking whether the decision produces real cash or measurable value—not merely impressive-looking activity.

Episode Overview

This episode examines how Henry Singleton built Teledyne into one of America’s most successful conglomerates through decentralized operations, rigorous cash-flow focus, and exceptional capital allocation. Singleton shifted strategies as market conditions changed: using highly valued stock for acquisitions, concentrating investments in businesses he understood, and repurchasing Teledyne shares aggressively when they became undervalued.

Full Transcript

Transcript of How Henry Singleton Worked from Founders. Auto-generated from episode audio; may contain minor errors.

Henry Singleton was an outstanding man with an unusual background for a CEO. A world-class mathematician who loved to play chess blindfolded, he programmed the first computer at the Massachusetts Institute of Technology while simultaneously 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 used in most military and commercial aircraft. All this before he founded the Teledyne conglomerate in the early 1960s and became one of the most prominent CEOs in history.

Conglomerates were the internet stocks of the 1960s . A large number of them have become public. However, Singleton ran a very unusual conglomerate. Long before he became popular, he was aggressively buying back his shares, eventually buying over 90% of Teledyne's stock. This is madness. He avoided dividends, emphasized cash flow over reported profits, ran a notoriously decentralized organization, and never split the company's stock. He was known as the Sphinx for his reluctance to talk to either analysts or journalists. It turned out that he was right to ignore the skeptics.

The long-term profitability of its more famous peers has been generally mediocre. Singleton, by contrast, ran Teledyne for nearly 30 years, and the annual compounded return for his investors was an extraordinary 20.4%. If you had invested a dollar in Singleton in 1963, by 1990, when he retired , it would have been worth 180. In fact, Charlie Munger said that Singleton's financial returns were a mile higher than anyone else's, that they were completely absurd. This is a direct quote from Munger. CEOs need to do two things well to succeed: effectively manage their operations and allocate the funds generated from those operations.

Most CEOs focus on managing operations. Singleton, by contrast, devoted most of his attention to the latter task. As Warren Buffett noted, very few CEOs come prepared for this critical task of capital allocation. The CEOs of many companies, this is a direct quote from Buffett, the CEOs of many companies are not skilled at allocating capital. Their inadequacy is not surprising. Most leaders reach the top through success in areas such as marketing , manufacturing, engineering, administration, or sometimes institutional politics. Once they become CEOs, they must make decisions about capital allocation.

This is a critically important job that they may never have undertaken , and one that is not easy to master. To put it more in detail, it seems like the final step for a talented musician was not to perform at Carnegie Hall, but to be appointed chairman of the Federal Reserve. So, that's where Buffett's quote ends . Singleton was a master of capital allocation, and his decisions to navigate these various allocation alternatives were significantly different from those made by his peers and had a huge positive impact on long-term profitability for his shareholders.

Singleton had a very differentiated approach. In particular, he believed in an extreme form of organizational decentralization, with a small corporate staff at headquarters and operational responsibility and authority concentrated in the hands of general managers of individual business units. So, further on in the book, a number of Singleton's beliefs are listed . Consequently, Singleton believed that capital allocation was the CEO's most important task. He believed that in the long run, what mattered was the increase in value per share, not overall growth or size. He believed that cash flow, not reported earnings, determined long-term value.

He believed that decentralized organizations unleashed entrepreneurial energy and reduced both costs and ratings. He also believed that independent thinking was essential for long-term success, and that interacting with the outside world could be distracting and time-consuming. He believed that sometimes the best investment opportunity was one's own shares. He also believed that patience in acquisitions is a virtue, as is occasional courage . Singleton was frugal, often legendary. He was analytical and reserved. Singleton was very different from other famous CEOs, such as Steve Jobs, Sam Walton, Herb Kelleher, or Mark Zuckerberg.

These geniuses were struck by extremely powerful ideas, which they implemented with maniacal focus and determination. Singleton was pragmatically focused on cash, and in a rare 1979 interview, Singleton said: “After we had acquired a number of other businesses, we thought about our business. Our conclusion was that cash flow was key. Our approach to cash generation and asset management stemmed from our own thinking. "It is not copied." This is the end of Singleton's quote. Here is a quote from Warren Buffett. And Buffett said, “Henry Singleton has the best operating performance and capital allocation in American business.

If you took the top 100 business school graduates and compiled a cumulative list of their successes, their track record wouldn't be as good as Singleton's. Singleton managed to increase the value of companies at an extraordinary pace over nearly 30 years of rapidly changing macroeconomic conditions. He did this by constantly adapting to changing market conditions and by focusing relentlessly on capital allocation.” And then the book gives this brief biography of his early life. He was born in 1916 in a tiny town in Texas. Singleton was a highly skilled mathematician and scientist who never earned a master's degree in business administration.

Instead, he attended the Massachusetts Institute of Technology, where he earned bachelor's, master's, and doctorate degrees in electrical engineering. Singleton programmed the first student computer at MIT as part of his doctoral dissertation, and in 1939 he received the Putnam Medal as the best student mathematician in the country. He was also an avid chess player who could play blindfolded. There are many wonderful stories about his chess playing in both...these books. After graduating from MIT in 1950, he worked as a research engineer at North American Aviation and then at Hughes Aircraft.

He was then invited by legendary former genius Tex Thornton to Litton Industries. Singleton left Litton in 1960 when it became clear to him that he would not succeed Thornton as CEO. He was 43 years old. This is really important. So now Teledyne, one of the most successful companies ever created, Henry Singleton founded it when he was 43 years old, and he had never started a company before. This is great. So, he does this, he starts a company with his colleague George, uh, Kozmecki. Uh, and in July 1960 they founded Teledyne.

They started by acquiring three small electronics companies and, using that foundation, successfully obtained a large naval contract. Teledyne then became a public company in 1961 at the dawn of the conglomerate era. For much of the 1960s, conglomerates had high P/E ratios and used that currency of their expensive...stocks to engage in a prolonged buying spree. During this turbulent period, competition for acquisitions was significantly less than it is today. Private equity firms did not yet exist, and the price of buying control of an operating company, measured by its P/E ratio, was often significantly less than the multiple at which the buyer traded on the stock market, providing a compelling logic for acquisitions.

Singleton took full advantage of this expanded arbitrage opportunity to develop a diversified portfolio of businesses. And between 1961 and 1969, he acquired 130 companies in various industries, from avionics to specialty metals and insurance. All but two of these companies were acquired using expensive Teledyne stock. However, Singleton's approach to acquisitions differed from that of other CEOs. He did not buy indiscriminately, avoided stock turnaround situations, and instead focused on profitable, growing companies with leading market positions, often in very niche markets. As Jack Hamilton, who heads Teledyne's specialty metals division, summed up his business to me .

We specialized in high-margin products that sold by the ounce, not by the...ton. In 1967, in his largest acquisition to date, Singleton purchased Vasco Metals and promoted its president, George Roberts, to the position of president of Teledyne, assuming the roles of CEO and chairman of the board. After Roberts joined the company, Singleton began to shy away from operational activities, freeing up more of his time to focus on strategy and capital allocation. Shortly after Singleton became the first to stop acquiring other companies in mid- 1969, due to falling multiples on his stock and rising acquisition prices, he abruptly disbanded his acquisition team.

Singleton realized that with a lower P/E ratio, the currency of his stock was no longer attractive for acquisitions. From that point on, the company never made any significant purchases again and never issued any shares. So, that's going to be something that's going to be repeated over and over again, the fact that he was willing to change strategies depending on what was actually happening on the ground, and that he never wanted to , he's said repeatedly that he wanted to come to work every day and just run the boat every day.

That's the metaphor he used. He reserved... said when describing his job that he saw his job as simply acting in the best interests of the company every day. Singleton eschewed the then-fashionable concepts of integration and synergy and instead emphasized extreme decentralization, breaking the company down into its smallest constituent parts and shifting the accountability and responsibility of managers as far down the organization as possible. The company's headquarters, with over 40,000 employees, had fewer than 50 people and no HR or investor relations departments. Ironically, the most successful conglomerate of that era was actually the least conglomerate-like in its operations.

After the acquisition engine slowed, Singleton turned his attention to the company's existing operations. In a departure from conventional wisdom, Singleton eschewed earnings reporting, a key metric on Wall Street at the time, managing his company to optimize free cash flow. They developed a unique metric 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 fluctuate.

Our accounting is set up to maximize cash flow, not reported profits. “The end result of these initiatives has been that, since 1970, the company has delivered remarkably consistent profitability across a wide range of market conditions. I think at some point I read this, uh, this article that was really hard to find. In fact, it had to be found on microfilm. I think it came out around 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 for distribution by Singleton . The decisions he made regarding the use of this capital were, not surprisingly, highly unusual and effective. Singleton said: “I’ve been thinking about it and our shares are just too cheap. I think we can make a better profit by buying our stocks at these levels than by doing almost anything else. "I'm going to announce a tender." " Beginning with the 1972 tender and continuing for the next 12 years, Singleton embarked on an unprecedented share buyback.

That's right, that's a great phrase, he could definitely be called the Babe Ruth of redemptions. Until the early 1970s, stock buybacks were rare and controversial. The conventional wisdom was that the buyout signaled a lack of internal investment opportunities, and so Wall Street viewed it as a sign of weakness. This is funny. So, it was literally the best he could do at the time, and they say he's weak because he did it. Singleton ignored this orthodoxy and between 1972 and 1984, in eight separate tender offers, he bought back an impressive 90% of Teledyne's outstanding shares.

As Munger says, that's a great line from Munger." No one has ever bought his stock so aggressively. “Singleton believed that buying stocks at attractive prices was self-catalyzing, analogous to the twisting of a spring that at some point in the future would grow exponentially to realize full value, generating exceptional returns in the process. Singleton did exceptionally well buying his own shares and generated an incredible 42% compound annual return for Teledyne shareholders across all tenders. Before we get back to that, I want to tell you about the sponsor of this podcast, Ramp.

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This is ramp.com. Singleton had been fascinated by the stock market since his teenage years, and in the mid-1970s, Singleton finally got the opportunity to pursue his lifelong passion when he took direct responsibility for investing the stock portfolios of Teledyne's insurance subsidiaries during a severe bear market. And now, I don't think you'll be surprised that even the way he invests in stocks will be unusual and done in his own way . Singleton developed a unique approach with remarkable results. He invested over 70% of his combined stock portfolios in just five companies, with an incredible 25% of his portfolio allocated to...a single company that was his former employer, Litton Industries.

This extreme concentration of the portfolio caused concern on Wall Street, where many observers believed that Singleton was preparing for a new round of acquisitions. His biggest assets were companies 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 I, he was comfortable with concentration and buying only a few things that he understood well. "One of the most important decisions any CEO makes is how they spend their time.

" And Henry Singleton's approach to time management, not surprisingly, was very different from that of his colleagues. Here's what he said: "I don't leave any daily responsibilities behind, so I don't get stuck in any particular rut. I don't define my job in any rigid terms, but in terms of the freedom to do whatever seems best in the company's interests at any given time." " Singleton did not believe in detailed strategic plans, preferring instead to remain flexible and keep his options open. As he once explained : “I know that many people have very strong and clear plans that they have developed for all sorts of things, but they have been subjected to a huge number of external influences, and the vast majority of them are impossible to predict.

So my idea is to stay flexible. My only plan is to keep coming to work. I like to drive the boat every day, not plan the future in advance." Singleton's independence of thought remained his distinguishing feature for the rest of his life. In 1997 , 2 years before his death from brain cancer at the age of 82, he met with a longtime investor, Teledyne. At that time, a number of Fortune 500 companies had recently announced large share buybacks. When asked about them , Singleton replied, " If everyone does it, there must be something wrong with them." Okay, this is an excerpt from one of the two books I'm going to tell you about today." This book is called " Strangers," written by William Thorndike.

And the other book is called "Distant Power"–it's a memoir about the Teledyne Corporation and the man who created it, written by George Roberts. I go back to the section in "Aliens" where they actually compare , well, Warren Buffett and Henry Singleton. I learned about Singleton many years ago because I read everything I could find about Warren Buffett and then Charlie Munger, and they kept mentioning this guy, whom they both admired greatly. They said his profits were truly absurd. Charlie Munger said he was the smartest person he had ever met.

And because I had studied Munger and Buffett before, I thought a lot of the ideas they used were their own, and I didn't realize that a lot of them were actually originally proposed by Singleton. So "Strangers " is a great chapter where they compare, and actually don't even compare, but just show the similarities, the striking similarities, between Warren Buffett and Singleton. So, it says: “Many of the hallmarks of Warren Buffett’s unique approach to managing Berkshire Hathaway were first adopted by Singleton when he joined Teledyne. In fact, Singleton can be seen as a proto- Buffett, and there are uncanny similarities between the two.” So I think William Thorndike gives us a great overview here.

He says: “ Both Buffett and Singleton created organizations that allowed them to focus on capital allocation, not operations. Both saw themselves primarily as investors, not managers. Both ran highly decentralized organizations with very few employees in the corporations and few, if any, layers between the operating companies and senior management. Both made all major capital allocation decisions for their companies. Both Buffett and Singleton focused their investments in industries they knew well and felt comfortable with concentrated portfolios of public securities. None of them offered quarterly recommendations to analysts.

Both provided informative annual reports with detailed information about business units. Both Singleton and Buffett recognized the potential of investing an insurance company's free float to create value for shareholders, and for both companies, insurance was their largest and most important business. Buffett and Singleton deliberately ran a very unusual business that, over time, attracted like-minded people focused on the long-term perspective of shareholders. And then, before I get to the book "Dissinforce," I just want to pull a few sentences from this "Sphinx Speaks" interview. Says: “ Henry Singleton has a tendency to watch a roaring herd and then run off in his own direction.

He is a strict individualist in the style of the late 20th century." He has a very individualistic management philosophy . "Good. So then I, because actually, you know, the title of this episode is what I was interested in, something like: How did Henry Singleton work? I reviewed both books and then selected all the highlights, removing everything else that didn't relate to his approach to work and how he built his company. And hopefully there are some ideas here that you and I can use. So there's one main point that actually comes up near the end of the book, "Dissinforce," and I want to move it to the very beginning because I think it's a great description of Teledyne." Singleton created Teledyne to capitalize on the coming revolution in which digital technology will replace analog devices and systems in everything we can touch and imagine.

Singleton wanted to apply semiconductors and digital technologies to many areas of commerce. And so one thing I liked about him is that he's a business history buff , like Buffett, like Munger, like you and me. Henry was much more than just a salesman, mathematician, engineer, inventor, and chess champion. He was a student, an observer of the history of manufacturing, the progress and growth of corporations since the time of Henry Ford, the rise of General Motors, and the way corporations successfully grow through acquisitions. So that 's a great description of Singleton from someone who worked with him for a very long time.

Singleton brought exceptional brilliance to the creation and development of the enterprises he took on. Few business leaders have combined mathematical genius and engineering talent with the insight of a financial analyst and the managerial 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 success, he just wanted to keep the most talented people around him. Singleton also believed and often said that the key to his success was people, talented people who were creative, good managers and doers.

From the very beginning, he surrounded himself with such people. And that's how they describe not only his co-founder, but also one of his friends who was on the Teledyne board of directors for, I think, about 26 years, Claude Shannon, who I just did another episode about a few weeks ago. Claude Shannon was his friend and classmate at MIT . He brought his own technical expertise and became world- renowned as the creator of the science of information technology, on which modern digital computer technology is based. Now we also have to deal with the fact that he has a lot of great ideas, but if you read both books, you think, "Okay, this guy looks like an alien." Come to think of it, Charlie Munger said he was the smartest person I'd ever met.

Think about all the world-class people Charlie Munger has met in his life. So, Henry actually took first place in his class of 820 in math. He won the Putnam Prize, which is one of the most prestigious and challenging mathematics competitions in the world. So, in every book, there are these little sentences that just hint that we're dealing with something very, very unusual. Uh, one thing that I found really interesting, and I like these little anecdotes, where some of the greatest entrepreneurs in history had talked , uh, and their paths had crossed before, even before, uh, Singleton founded Teledyne.

He actually works for Howard Hughes, and he talked about what it was like. And he says: " I once had the pleasure of demonstrating to Howard Hughes a pilot fire control simulator." Henry later told me stories about meeting Howard Hughes on evenings when they worked late. " Howard only came to us at night and always without warning." He asked what we were doing and always understood everything when we explained it to him. He was a very good person ." Sorry, I mentioned this before, but he was interested in financial markets decades before Teledyne was founded.

Henry told me how in the early 1940s and early 1950s he spent his days in brokerage offices , watching stock tickers, pondering how to efficiently turn capital around, how stocks were valued and traded. He thought about how companies with steady growth rates were rewarded with ever-increasing P/E ratios. Henry became convinced that digital technology would become the dominant force in future developments in control systems and virtually every other electronic field, and that semiconductor technology would be crucial to future developments in these fields. He considered it important that Litton enter the semiconductor field to oversee the development of components used in these control systems.

So this is where he works at the time. This is his last job before he starts his own company. And so he shared this idea with President Litton, but President Litton didn't agree. And he told Henry that the semiconductor component business was too crowded and competitive. But Henry believed in his beliefs. So, it was when Henry was 43 that he and George decided to invest their personal resources in starting a new electronics company. They started with an initial capital of $450,000. And before we get back to that, I want to tell you about AppLovin.

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We did this because of our belief that it was necessary for our long-term future growth, not because of any belief that we would immediately make huge amounts of money. And then he continues in the next paragraph, and I...I think you really see how his brain works. We decided that if we were going to manufacture , develop and sell electronic control systems, we had to have capabilities in the component area. This would improve our ability to design systems as we know more about new components that we could use.

On the other hand, our experience in systems would allow us to better assess which components to develop. And then everything breaks down. The book reveals the fact that Henry had three great ideas. These are the three main ideas on which he built his company. I would like to emphasize here that Henry had three great ideas for creating and developing Teledyne. His first idea was to recognize the future importance of digital semiconductor electronics when the technology was in its infancy , and through selective acquisitions to create a strong base in this growing industry from which to diversify his company.

The second idea was to acquire and organize a number of financial companies within his company to provide a solid financial base. The third is his innovative use of stock buybacks. These three things are equally important to remember as we consider and continue the story of Henry Singleton's achievements. Henry began his growth plan through acquisitions in his first year of operation. And then I mentioned earlier how, reading both books, there will just be these lines in the books and these random lines that you realize, "Okay , we're dealing with a completely different person ." It is said that Henry developed a talent for playing chess without seeing the board.

One story tells that Henry played chess with Teledyne, his back to the board, and Teledyne would tell him what move he was making. Suddenly during the match, Henry said, " Teledyne, you told me the wrong move three moves ago ." And then in this conversation, Singleton describes what his goal was in creating Teledyne. Jay Last recalls how, on his first meeting with Henry, he asked him, “Are you trying to create another Lytton?” “No, damn it, ” Henry replied. "I'm trying to create another GE." This explains why the choice of companies that Henry acquired gradually became more and more diverse.

Later, he began looking for companies that were less and less related to his original markets of electronics, government, and the military, but that would diversify them and contribute to his company's profitability. Years later, Henry said, “Teledyne is like a living plant, where our companies are different branches, and each one of them produces new branches and grows, so that no business is too big.” And Singleton's strategy created this kind of flywheel. Let me describe it here. It's quite interesting how Teledyne's technologies actually expanded, like a branching tree, where each new technology paved the way for other related technologies, and those paved the way for yet others.

In many cases, when managers of individual companies saw opportunities in related industries, they themselves recommended that we acquire other relevant companies . So they give an example of how it can kind of branch out, as a tree grows, and you yourself can branch out and grow into these other related branches. And here is the description. Our geophysical capabilities and seismic products have allowed us to enter the field of oceanography and offshore oil exploration , where seismic techniques are used to profile the geological layers of the seabed to identify likely locations where we can drill oil wells.

This led to further expansion of Teledyne's activities in the oil 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 this book, it's out of print, it's very hard to buy, but there 's a ton of information in there. It's almost like miniature biographies of each company they're involved with. They don't cover all 130 of them, but they go into much more detail than I obviously can here.

So, if you're interested, try to find a copy of this book. I highly recommend her. So, another thing that Henry talks about over and over again, conversations about talent management , started, I think, a few times already on the podcast, where he said it's like the key to success. He also has some very interesting ideas here. He was also very interested in the managerial talents of the owners and managers of the businesses he acquired. When possible, Henry wanted these people to stay with Teledyne as managers of their own operations.

Because they were the most knowledgeable in their industries, their markets, and their production. technology. And here's what he says: "We have what's called a management inventory. We work tirelessly to increase our own capabilities to recruit and promote the right people. " To the extent that we succeed, the entire company will succeed." He repeats it over and over again. We are raising the stakes on men who appear to be performers . "So that's another thing , as long as you're hitting your metrics, you're running your business, you did n't even have to talk to him ." He just left you alone.

I think he said that several times. Like, "Oh, they're doing their job, why don't you just leave them alone?" We try to have all of our people, instead of competing with each other...It's still Singleton, uh, speaking here. We try to get all of our people, instead of competing with each other within Teledyne, to look outside and see that the real competitors are all the other big corporations in the United States. Our goal is to increase our earnings faster than they do. It's a lot of fun, and as a result, we envision it as a competitive game." So they are back again.

All of these highlights will appear on separate pages. They just repeat the same ideas over and over again, that we want to preserve the demonstrated talent and experience. We always hope that the owners or managers of these companies will stay and continue to run their operations, and most have . Many of them founded their companies 20 or 30 years ago and have managed them , turning them into the successful and viable businesses that initially caught our attention. Some of them were already ready to retire. In such cases, we asked if they had a relative who knew the business and could take it over and run it.

Sometimes another top manager or some of the best technical specialists agreed to do the job. These men knew more about their specific business than we did, and we wanted to preserve their expertise. We had no intention of running the business on a corporate level . They did this as if they were receiving information from these enterprises. We created our own unique financial and operational reporting system that allowed us to closely monitor their activities on a monthly basis and spot any problem areas before they became serious.

Another principle of Henry Singleton's work, especially when he has convictions, is that he acts quickly. So just during the three-year period from 1966 to 1969, they acquired another 90 companies. Another thing Henry repeated over and over again was that he didn't like to waste time. I think it's great that these two sentences give you an idea of ​​that. Uh, description...This is a description of what the meeting with Henry Singleton was like. Our first meeting was brief, but it was during it that each of us spoke with complete honesty, and this became the foundation of our long-lasting relationship.

All our meetings were short but very effective. So he didn't like to waste time. He also didn't like spending money. One funny story from those early days. Henry called me and invited me to have lunch with him. We always went to the poker room because the lunches were inexpensive. When it came time to pay for dinner, Henry always asked me to pick up the bill. He constantly taught me to value frugality by not inviting me to an expensive restaurant. He also said some crazy nonsense once, that they just needed a company car.

He said something like, "Okay, let's buy everyone a Ford Pinto." And I think some of the guys on staff were like, the Pinto is a tiny car that ends up having a bad, well, bad reputation because it seems like if you crash into it , it's just going to explode. But it's so small that most adult men wouldn't be able to fit in it. So, if you were about 188 cm tall, you wouldn't be able to fit in there. He's like: "Well, what's wrong with that?" "And so that this story is also funny.

And so, in addition to not liking to waste time, not liking to waste money, he expects you to know your business from A to Z. One of my favorite maxims in the history of entrepreneurship comes from this guy named Sam Zemurray. There's this fantastic biography about him called "The Fish That Ate the Whale." There's a line where he said that if you know your business from A to Z , there's no problem you can't solve . And so he tells the author of the book, and he says, “Hey, I want you to meet this guy named Russ.

He is a unique guy." And so he says, "Okay, what's unique about it?" And Singleton replies, “The unique thing about him is that I ask him a question about one of these companies that I’ve assigned him to oversee, and he always knows the exact numerical answer. If I ask him what they did in sales last month, he knows right away without having to call someone to find out .” That's the kind of guy you choose, who runs a company and does it well. This is exactly the kind of group leader we need.

"Then it goes back to another one of their principles that they repeat over and over again: you have to disrupt...They believed in breaking their companies down into the smallest possible units." We argued that smaller units give management better control and make the local manager fully responsible for the success of his own activities, as well as motivate him to work successfully. Our policy of maintaining small operating units, each responsible for its own success, is something we have adhered to throughout the corporation's history. Another thing Singleton did was cut his losses and moved on.

It says we acquired Packard Bell for 16.5 million common shares and assumed 5.5 million of their debts. This was a profitable addition to our company for many years, but eventually the competition from Japanese TV manufacturers became too fierce. Henry was never shy about cutting his losses, and we just got out of that business and closed the television business. Then it's about, you know, during the first decade, the story of Teledyne changed from decade to decade. So during the first decade of the 1960s, they just bought.

They bought , you know, 100 out of 130 companies. And then, in 1969, they stopped buying companies altogether. And they explained why they made this decision. By 1969, Henry decided that the prices of other companies that might interest us had become too high. Part of this was due to increasing competition for these companies from other conglomerates that were growing just like us. Many of the best companies had already been acquired, and there were fewer companies that were really interested in us. Companies started asking for more than we thought was reasonable.

Our decision was influenced by the fact that at the time there was a business recession, earnings per share growth 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 a change in strategy where they went from buying entire companies to just buying parts of them on the stock market. So by 1970, as we entered our second decade of operation, we had stopped directly acquiring companies.

We decided that it didn't make sense to pay inflated prices for full ownership of companies when we could have acquired a significant stake in them through our insurance companies when market prices were favorable. And you'll see that when Henry talks about this , it's very similar to what Buffett does in his letters to shareholders. And so it says here that, uh, Henry was quoted about his philosophy on this. There are huge values ​​in the stock market, but buying stocks rather than entire companies tends to drive up the purchase price too much.

Don't be fooled by a few stocks trading at low multiples of six or seven. If you try to buy these companies, the ratio will be more like 12 or 14. And their manager will say, "If you don't pay , someone else will." And they are right, someone else will pay. So , for us, it's not a purchase while they are overpriced. I will not pay 15 times the excess profit . This would mean that I would only make a profit of six or seven percent. I can do this with Treasury bonds.

We don't need to make any major acquisitions. When it comes to the stocks we choose to invest in, the goal is to get the highest possible return. We have no other intentions. We do not view them as future acquisitions. So let me interrupt this quote from Singleton. Because at the time they were thinking, "Oh, this guy is a serial buyer." He bought, you know, 150- odd companies, whatever the number is. He's just doing it as a way to find more acquisitions. They could just be bigger.

And he says, "Well, we don't really look at them as future acquisitions." He says: “Buying and selling companies is not our business. Those who don't believe me can do so, but they will be just as wrong in the future as they were in other things concerning Teledyne in the past." And that's the end of the quote. So, another great quote or rather story from the book about how he just said, “Hey, meet this guy. He knows the business from A to Z." If you ask him how sales are doing in any department, he will know everything right away.

Singleton was obsessed with details. And here's this great quote from Walt Disney that I love, which says, " If we lose the details, we lose everything." And here is a story that illustrates this. Henry was very concerned about Teledyne's image. Jay told me that one day he happened to walk past the open door of the public relations department, peeked inside, and saw Henry Singleton sprawled on the floor with large drawings, discussing the exact design, shape, and proportions that would make up the Teledyne logo. Through his actions, he shows that he pays attention to every little thing.

Going back. Talks about his preference for autonomy. Repeats this over and over again. "We really wanted our companies to operate with a significant amount of autonomy, and that put a huge burden on our individual company presidents." Henry said, “We depend on them. We must trust them. We succeed or fail depending on what they do ." This was entirely consistent with Henry's firm belief that people are the most important factor in business. How many times did he repeat that? Again , it repeats itself ...How much is this book?

300-300 or so pages? And that's what... This idea is repeated over and over again. In fact, people are the most important factor in business. And they needed to be given a chance to do their job. Direct quote from Singleton. "Why bother them if they're doing their job?" Coming back to that idea...He doesn't care what you think about his strategy. The press gets everything wrong all the time. The fact that "Oh, he went from buying all these companies to now he's just buying stocks." But these shares–this is just a person that he actually, well, you know, is going to carry out a hostile takeover.

He is going to buy them. Not only is he not going to buy them or carry out a hostile takeover. By 1977, Teledyne was the largest shareholder in nine Fortune 500 companies. He didn't even want a seat on the board of directors, let alone control. That is, we actually had enough stock in six of these corporations to actually control them, but Henry never took advantage of that opportunity. He did n't even try to get a position on the boards of directors of these companies. There has been widespread speculation for a long time that he was planning to take over these corporations, and this may have caused concern among some managers.

In fact, Henry went to great lengths to assure these 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, here's what a spokesman for Curtis Wright said about Singleton. He was absolutely scrupulous in staying out of our affairs. That many did not believe him showed how little they knew of Henry's integrity and his determination to follow his own path. One of the ways he followed his own path was to come up with something like the Teledyne yield.

We developed a metric we called the Teledyne yield , which was the average of your cash yield and your profit. We were telling an individual business unit, for example, that you reported a million dollars in revenue, but you only had half a million dollars in cash. So you only made $750,000. Teledyne's profitability. 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 it confuses some people. So let me just add a few notes on Teledyne's profitability .

So it was net income plus cash flow divided by two. An important conclusion was that Singleton did not want managers to optimize their activities solely for accounting profit. A division could report a million dollars in profits, but if it produced only $500,000 in cash, Singleton considered the economic performance to be significantly worse than the income statement suggested. That's why Singleton invented Teledyne reporting. Teledyne consisted of dozens of decentralized businesses. Singleton wanted to give managers enormous operational autonomy while having a single metric at headquarters that would tell him whether they were actually creating economic value.

This metric has become a key basis for evaluating and compensating Teledyne business unit managers. It also prevented the classic management trick of increasing reported profits by consuming working capital. The manager could increase sales and profits by stockpiling inventory or extending generous credit to customers, but cash flow would deteriorate. Teledyne's reporting would reveal this. This fits perfectly with Singleton's broader philosophy. The subsidiaries existed to generate cash, and Singleton's job was to distribute that money. So, another thing about Singleton, and I love this, is that this is probably one of my favorite quotes in the book.

So, this happens in two paragraphs, which I think is interesting. First, repeat over and over again how some of the best founders, the best managers , they are simply teachers. They have this unique philosophy that we've been talking about for quite some time now . And then they just spend their time educating their entire organization on how they want the business to be run, why they do what they do, how the actions of these individual business unit managers affect the bottom line of the entire company, and so on.

And so, you know, a lot of people don't have one-on-one meetings here, but there are a lot of examples in the books where Henry just takes people aside and essentially has training sessions. For example, whether over coffee, or at lunch in the poker room, or in his office, or on the floor. So, it says, “Quite often, Henry would simply talk about his philosophy of corporate governance and the various financial strategies he came up with as he sat in his corner office every day, often working alone at his Apple computer.

He was a brilliant business strategist and came up with many creative ideas, ideas that sometimes contradicted the accepted methods of managing a large corporation at that time. And then you have a great line. This is my second favorite part of this paragraph, where Claude Shannon tells you, you know, bad guys move silently. This is a direct quote from Shannon, Claude Shannon, about Henry Singleton. He's always trying to come up with 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 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 swing it better than others. And then another thing that Singleton kept repeating was that he found short-term thinking abhorrent. He said: “We are not particularly convinced by the quick temporary benefits. We would prefer to get something permanent, and that takes time. If there's someone who wants us to do something really fast that's going to be spectacular in terms of increasing profits or something like that , I don't know how to satisfy those desires.

“When asked about whether spin-offs are a good way to increase shareholder value, he replied: ‘You’re thinking short- term. I'm talking about the long term." So I wouldn't do anything like that for the sake of a temporary increase in the share price. You know, there are companies that sell one division and buy another because that division usually has a low multiple and the one they buy has a high multiple. And they think it could spread to the entire company. This absolutely repels me . This whole concept is repulsive.

We don't do that. We are looking at economic long-term opportunities." “And then something else interesting about Henry Singleton: when he dies, he seems to become the third largest landowner in the United States at the time. He also had, uh, another love for real estate. In fact, the book says that he never sold any real estate, whether it was a house, a ranch, or just empty land in his entire life. He just kept buying them. And so, after he retires from Teledyne, he spends the rest of, uh, I think about 10 years of his life, maybe something like that, just working on his ranch.

And one of the interesting parts is that his daughter later wrote a book about how her father ran the ranch, and you see a lot of parallels between what he did with Teledyne. And he insisted on writing every check, you know, every single expense that he wrote for the ranch, and he called it a form of discipline. And he talks about the importance of keeping track of every dollar. He pays all the ranch bills and signs all the checks, calling it a form of discipline. By signing, it's..." It's amazing how much you learn about business.

Behind each check is a reminder of each event or action. And then, after finishing both books, I organized another chapter where Munger and Buffett actually talk about Singleton, and there are some interesting ideas in there. So, sharing Buffett's admiration for Henry Singleton, Charlie wondered, it seems, at one of the meetings in Berkshire: "Given this man's talent and experience, have we learned enough from him?" Buffett said that Singleton had, quote, the best operating performance and capital allocation in American business. He went further , saying that if you combined the achievements of the top 100 business school graduates, their combined score would not match Singleton's.

Buffett also called it a crime that business schools didn't study Singleton. Charlie Munger said that Henry Singleton was very interesting. He was much smarter than Warren or me. Munger also said that we respect Henry Singleton for a very simple reason. He was a genius. Munger called Singleton an amazing intellect and rated his raw intelligence as one of the best 1/1000. 1%. Munger said that Henry Singleton was the smartest single person I ever knew in my life. But it's very exciting. That's why I wanted to include this section.

Because Munger made a distinction between raw intelligence and accumulated experience . And so he, having a close understanding of both Buffett and Singleton, concluded: "Henry was much smarter, but Warren had been thinking about investments for much longer." “So, think about it. Singleton doesn't start his company until he's 43 , he doesn't really start investing all his money until he's, say, 50, and he does it for another 20 years, so maybe from 50 to 70 , where Buffett started at 9 and is still doing it at 90.

I like how Munger made this distinction between raw intelligence and time. And so I want to close with this beautiful speech, printed at the end of A Distant Power , which gives us a deep understanding of Henry Singleton, the man, from someone who knew him well. It's rare that you meet a complete stranger and immediately know that you're going to start to admire that person. This happened to me the first time I shook Henry Singleton's hand. It was half a century ago at MIT , where I came to recruit graduate students for doctoral degrees in engineering.

The dean of MIT gave me records of all the graduates and a photo of each one. The graduates all looked like engineers usually do, except for one . He was really..." good looking and something else. His grade sheet was particularly crowded. All the other graduates' scores were somewhere around 80 or 90. These were double digits. Henry Singleton's grades were 100 everywhere. Three figures squeezed into a space only meant for two. For every course he took, every final exam – 100, perfect. While other graduates were preparing stories about their achievements, Henry asked me questions.

What were we doing in Southern California ? Why? And why are you doing it there? And how did your projects come about? Henry accepted our offer, went west, and began a career as an engineer. If he had decided to remain an engineer , his career would certainly have been outstanding. But an unexpected opportunity arose that revealed an amazing dimension to Henry. Create a new company that would find, buy, merge, and manage other companies. Here he demonstrated extraordinary talents that he could not even fully suspect .

As CEO, he now applied his powerful analytical skills in new ways to research and assess the true value of companies, their stock prices, their competition, their profits, and their growth. potential. With his standing desk and computer, he has transformed into a tree full of the wisdom of corporations and markets. Henry was no ordinary CEO. He consistently disappointed the world of Wall Street and the business media by ignoring them. By accompanying his phenomenal business success with the advantage of anonymity, he mystified them. It is not surprising that when his talents and analytical business decisions became known, many considered him a pure numbers guru, uninterested in the human factor in investments.

This is not true, and I can give an example. Years ago, advances in technology suddenly made it possible to create inexpensive, powerful computers that millions could buy . Numerous companies were created to produce them. Most failed. Not the one Henry helped finance. He invested in Apple. I asked him how, given all these new computer startups, he chose Apple? He replied, "Well, I thought most of those millions of expected potential computer buyers would be intimidated by computers at first. But how can someone be scared of a computer named Apple?

Besides, everyone else except Apple, if they failed, would just leave. The founders of Apple simply needed to justify their point." All of us who knew Henry well felt the warmth of friendship and genuine concern beneath his restraint. If we now feel sadness after his death, it is perhaps a worthy price we must pay to compensate for the enrichment of our lives that our acquaintance with him brought us. And that's it for now. That's 431 books, 1,000 left. And I'll talk to you again soon.

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