The Outsiders, by William Thorndike

Good for: Business Owners, Investors

Topics: Portfolio Management, Capital Allocation, Private Investments

You can buy The Outsiders from Amazon for $US20.

About the book

The Outsiders, written by William Thorndike tracks the strategies and performance of eight “unconventional CEOs” throughout the past century. The CEOs:

  • Tom Murphy, Capital Cities
  • Henry Singleton, Teledyne
  • Bill Anders, General Dynamics
  • John Malon, TCI
  • Katharine Graham, The Washington Post Company
  • Bill Stiritz, Ralston Purina
  • Dick Smith, General Cinema 
  • Warren Buffett, Berkshire Hathaway 

What I learnt

Thorndike does an excellent job of conveying the unique tendencies of these exceptional CEOs. The book not only showed how these CEOs produced eye-watering track records via capital allocation but also concisely revealed the personal and professional traits that led to those decisions. The name The Outsiders is very apt. Many of these CEOs favoured share buybacks over dividends, took big bets infrequently (except Malone) and did their own analytical work.

3 key takeaways

The chicken (CEO) or the egg (company): Many famous investors tell us to focus on great businesses first and foremost, then the management. ‘Focus on finding businesses that even an idiot can run because sooner or later, one will’.

Thorndike left the most impressive CEO and investor for last: Buffett. However, what I found most interesting was Buffett’s presence in some of the stories of the other great CEOs. Was it purely coincidence that Buffett was a major investor in some of the companies run by the other CEOs? Some of the companies were a mess before these CEOs arrived. If an idiot ran one of them, we wouldn’t be talking about it today.

The preface of the book leads with a quote from Buffett which is extremely telling, in my opinion: “It’s almost impossible to overpay the truly extraordinary CEO… but the species is rare.”

Value creation doesn’t require a head office: The Outsider CEOs ran lean head offices. By placing the operational responsibilities of their businesses as far down the corporate ladder as possible, they empowered their managers in their day-to-day. However, the CEOs retained all responsibility for the investment decisions.

They invested long-term. This is a no-brainer. You cannot compound without time. They knew this. All good investors know this. However, often when we talk about ‘patience’ in investing, we refer to our holding period – “How long do you intend to hold your investment?” The CEOs were long-term holders. But they were especially patient buyers and sellers of businesses (Malone was perhaps the exception – he bought many businesses). For example, some of the CEOs hoarded cash for periods as long as 10 years without making a new investment!

Bonus Takeaway: The CEOs did not buy companies based on accounting profit metrics — they focused on the cold, hard, cash.

Got a book recommendation? Let me know!