MI360: The Outsiders w/ Shawn O'Malley
The Intrinsic Value Podcast - The Investor’s Podcast Network
Understanding Poor Capital Allocation and CEO Selection
Exploring the factors leading to suboptimal capital allocation by CEOs, focusing on the selection bias favoring charismatic individuals with limited capital allocation skills. It also examines the skills gap in CEOs transitioning from functional roles to overall leadership positions.
In today’s episode, Patrick Donley (@JPatrickDonley) sits down with Shawn O’Malley, Chief Editor of our newsletter, We Study Markets, to discuss what his main takeaways were from doing a deep dive into The Outsiders by William Thorndike.
Learn how CEOs operate like stock investors, why capital allocation is unintuitive for most company leaders, what factors lead to poor capital allocation, how to identify leaders that will be extraordinary capital allocators, which Outsider CEO most stood out to Shawn, how you can apply the lessons in The Outsiders to your own investing, plus so much more!
William N. Thorndike is founder and a managing director of Housatonic Partners, a private equity firm. He is a graduate of Harvard College and the Stanford Graduate School of Business.
IN THIS EPISODE, YOU’LL LEARN:
00:00 - Intro
02:36 - How CEOs operate like stock investors
05:01 - Why is capital allocation is unintuitive to most CEOs
09:37 - What factors lead to poor capital allocation by CEOs
11:36 - What is in a CEOs toolkit to allocate capital effectively and how can they be evaluated
16:28 - How to identify extraordinary CEOs that will be great capital allocators
20:18 - How the Outsider’s CEOs were able to resist the institutional imperative
24:29 - Which of the Outsider’s CEOS most stood out to Shawn
29:30 - How Henry Singleton masterfully allocated capital at Teledyne
34:05 - What lessons can be learned from The Outsiders for today’s investor
*Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences.
BOOKS AND RESOURCES
- Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Kyle and the other community members.
- Lawrence Cunningham's book, The Essays of Warren Buffett.
- Benjamin Graham's book, The Intelligent Investor.
- William Thorndike's book, The Outsiders.
- Check out the books mentioned in the podcast here.
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