He bought back 90% of the stock, 20.4% annualized
Most CEOs only know how to operate, not how to allocate capital. Singleton treated capital allocation as the main job: when the stock was too cheap he bought his own stock, and when he couldn't find good companies he never issued another share.
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The CEO's real job is allocating capital
Buffett's exact words: most bosses rise to the top because they are outstanding at marketing, production, engineering or office politics, and once they become CEO they have to do a job they may never have touched and are not easily able to master — capital allocation. Singleton was the reverse: he put the vast majority of his attention on allocating cash, not on operating. He first started a company in 1960 at age 43, having never founded one before, yet he built Teledyne into the most successful conglomerate of that era.
In 1969 he simply disbanded the acquisition team
From 1961 to 1969, Singleton used Teledyne's high-priced stock to buy 130 companies, all but two of them paid for in stock. But by mid-1969 his stock's PE ratio had fallen and acquisition prices had risen, so he immediately disbanded the acquisition team. After that the company never made another major acquisition and never issued another share. This was not strategic planning; it was shifting gears every day based on actual conditions on the ground.
He invented an anti-accounting metric
Singleton did not look at reported profit; he looked at free cash flow. He came up with a metric called Teledyne return: net income plus cash flow divided by two, used as the basis for the bonuses of the general managers of all business units. A division could report 1 million in profit but generate only 500,000 in cash, and Singleton would consider its economic result far worse than the income statement suggested. This metric was designed specifically to expose a classic maneuver: propping up reported profit by stockpiling inventory or loosening customer credit, which cash flow will reveal.
Buying his own stock was the best investment
Starting in 1972, Singleton ran tender offers for 12 consecutive years, in eight rounds, ultimately buying back 90% of Teledyne's outstanding shares. Buybacks were unpopular and controversial at the time; Wall Street saw them as an admission that there were no investment opportunities inside the company, a sign of weakness. He ignored this orthodoxy and in the eight tender offers created a 42% compound annual return for shareholders. His metaphor: buying your own stock at a cheap price is like compressing a spring, which will later snap out and realize its full value.
70% of the position in five companies
In the mid-1970s bear market, Singleton personally managed the stock portfolio of Teledyne's insurance subsidiary, putting more than 70% of its equity assets in five companies, with 25% in a single company — his former employer Litton Industries. For a time Wall Street thought he was preparing a new round of acquisitions. Munger's assessment: like Warren and me, he was very comfortable with concentration, buying only a few things he truly understood.
Semiconductors were a conviction, not a business
In 1960, while the company was still in a business crisis, Singleton entered semiconductors. His exact words: we did this because we believed it was necessary for long-term growth, not because we believed it would make a lot of money immediately. The logic ran both ways — to build systems you need to understand components to design them better, and to understand systems you need to judge which components to develop. The book sums up his three big ideas for building the company: an early bet on digital semiconductors, acquiring financial companies to provide a financial foundation, and innovative use of stock buybacks.
Largest shareholder but never on the board
In 1977 Teledyne was the largest shareholder of nine Fortune 500 companies, and in six of them its stake was enough to exercise effective control, but Singleton never exercised that power, and never even asked for a board seat. A spokesman for Curtis Wright said he was absolutely proper in our affairs. The market long speculated that he would make hostile acquisitions, and he went out of his way to reassure the management of these companies that he had no such intention.
Munger: he was smarter than Buffett
Munger said Singleton was the single smartest person he had met in his life, estimating his raw intelligence at the top one-thousandth of the top 1%. But he also drew a distinction: Henry was much smarter, Warren spent much more time thinking about investing. Singleton started a company at 43 and did investing roughly from 50 to 70; Buffett started at nine and was still doing it in his nineties. Buffett said it is a crime that business schools do not study Singleton.
In their own words · checked verbatim
Singleton, in contrast, ran Teladine for almost 30 years, and the annual compound return to his investors was an extraordinary 20.4%.
From this point on, the company never made another material purchase and never issued another share of stock.
Singleton ignored this orthodoxy and between 1972 and 1984 in eight separate tender offers he bought back and establishing 90% of Teladine's outstanding shares.
I don't reserve any day-to-day responsibilities for myself, so I don't get into any particular rut. I do not define my job in any rigid terms, but in terms of having the freedom to do whatever seems to be in the best interest of the company at any time.
Henry Singleton14:06
If everyone's doing them, there must be something wrong with them.
Henry Singleton15:07
I won't pay 15 times earnings. That would mean I'd only be making a return of 6 or 7%. I can do that in T bills.
Henry Singleton35:17
He always tries to work out 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 else what your strategy is.
Claude Shannon41:19
Henry Singleton was the smartest single human being I've ever known in my entire life.
Charlie Munger44:20
Figures
| Teledyne investor compound annual return | 20.4% | 1:02 |
| Value of $1 in 1963 by 1990 | $180 | 1:02 |
| Companies acquired 1961-1969 | 130 | 6:04 |
| Headquarters employees (total employees over 40,000) | fewer than 50 | 8:04 |
| Shareholder compound annual return during the buyback period | 42% | 11:04 |
| Share of a single company in the insurance stock portfolio | 25% | 13:05 |
| Companies acquired in the three years 1966-1969 | 90 | 30:15 |
| Price paid for Packard Bell and debt assumed | $16.5 million in stock plus $5 million in debt | 32:16 |
Glossary
- capital allocation
- The decision of how to distribute the cash a company generates among acquisitions, buybacks, dividends and other uses.
- tender offer
- A way for a company to publicly buy its own shares from shareholders at a specified price.
- float
- Money an insurance company can invest during the period after it collects premiums and before it pays claims.
- PE ratio
- Share price divided by earnings per share, a common multiple for judging whether an acquisition or investment is expensive or cheap.
How to listen
Founders and investors, especially founders currently wondering what a company should do with the money it earns, and public-market investors studying capital allocation.
The sponsor ad segment from 11:00-23:00 can be skipped.