Episode guests
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Quick takeaways
- Successful Outsiders prioritize unique models in challenging industries for substantial value creation.
- Outstanding CEOs exhibit humility, patience, and capital efficiency for sustained growth.
- Companies should focus on long-term performance metrics over short-term market trends for flexible valuation decisions.
Deep dives
The Importance of Management Skills in Successful Outsiders
Successful Outsiders such as Henry Singleton and Herb Kelleher managed to excel in challenging industries like steel and airline, using unique models that transformed their businesses. These leaders tackled unionization and focused on cash flow, leading to substantial value creation.
Distinguishing Traits of Outstanding CEOs
Outstanding CEOs often exhibit characteristics such as humility, hard work, patience, and persistence. They prioritize long-term growth and revenue quality while demonstrating capital efficiency and maintaining differentiated market positions.
The Impact of Capital Allocation in Company Valuation
Companies with effective capital allocation strategies tend to be valued based on their free cash flow yield and long-term growth rate. Conviction around sustained growth allows for flexibility in valuation decisions, with a focus on performance metrics rather than short-term market trends.
Learning from Past Investment Mistakes
Reflecting on past investment decisions, it is common to sell high-quality companies too soon due to market conditions or high valuations. Holding onto exceptional companies for longer periods often yields better returns, emphasizing the significance of patience and conviction in investment strategies.
Continuous Improvement in Investment Strategy
To enhance investment outcomes, ongoing learning and improvement in investment strategies are essential. Reading books by successful investors like Warren Buffett and exploring annual letters from industry leaders can offer valuable insights and contribute to refining investment approaches.
Will Thorndike is the co-founder of Housatonic Partners and host of the 50X podcast. In this episode, we discuss Will’s masterpiece “The Outsiders” and the lessons he brings from writing it. The book covers eight CEOs who excelled at capital allocation and describes the strategies underlying their success. "The Outsiders" was published ten years ago, and recommended by Warren Buffett in his 2012 annual shareholder letter.
We welcome all suggestions of interesting authors, books, investors, and voracious readers. For more info about the podcast, go to the episode page and follow us on Twitter. This episode was recorded on August 17, 2022.
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Episode Chapters
(00:00) Intro by Eddie & Niklas
(03:16) How Will’s passion for investing started
(08:13) Common traits of the outsiders
(19:49) Holding on to high-quality companies
(26:06) The importance of corporate culture
(34:49) When M&A becomes value-destroying
(38:53) How to think about share issues
(41:41) How to find outsider CEOs
(50:19) The outsiders of tomorrow
(56:03) Thoughts on valuation
(1:02:39) Book recommendations
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Books Mentioned
- Money Masters of Our Time - John Train
- Sam Walton: Made in America - Sam Walton
- Shoe Dog - Phil Knight
- Fortune’s Formula - William Poundstone
- Buffett: The Making of an American Capitalist - Roger Lowenstein
- The Snowball - Alice Schroeder
- You Can Be a Stock Market Genius - Joel Greenblatt
- The Warren Buffett Portfolio - Robert Hagstrom
- Elusive - Frank Close
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Companies Mentioned
- Capital Cities Broadcasting
- Teledyne
- General Dynamics
- TCI
- The Washington Post
- Ralston Purina
- General Cinema
- Berkshire Hathaway
- Danaher
- Prosus
- Arch Reinsurance
- RCI Hospitality
- Constellation Software
- Brookfield Asset Management
- Lifco
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More on Will Thorndike
50X Podcast - Will's podcast where he discusses and dissects extraordinary investments
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About the Podcast
Intro episode: https://www.redeye.se/podcast/investing-by-the-books/817383/0-intro-to-investing-by-the-books
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What is Investing by the Books?
Investing by the Books was founded by Henrik Andersson, Bo Börtemark, Mats Larsson and Michael Persson. It has published hundreds of book reviews in the past 10 years and operates on a non-profit basis.
Visit the website: http://www.investingbythebooks.com/
Follow on Twitter: https://twitter.com/Investbythebook
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What is Redeye?
Redeye is a research-centered boutique investment bank from Stockholm. Founded in 1999, Redeye cultivates investors through timeless knowledge, a humble attitude, and a strong focus on quality.
Visit the website: https://www.redeye.se/
Follow on Twitter: https://twitter.com/Redeye_
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Disclaimer
Notice that the content in this podcast is not, and shall not be construed as investment advice. This information is meant to be informative and for general purposes only. For full disclaimer, visit Redeye.se
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