15 learnings from "The Outsiders" to investing and investment management
Learn from some of the best, so you can find the best, and be one of the best.
“The Outsiders” by William Thorndike was a book we finally recently got to read. It detailed eight "Outsiders" CEOs who adopted radically different approaches to capital allocation, resulting in extraordinary success.
Together, the eight CEOs outperformed the S&P 500 almost 30 times over 25 years.
They are:
Tom Murphy and Capital Cities Broadcasting
Henry Singleton and Teledyne
Bill Anders and General Dynamics
John Malone and TCI
Katherine Graham and The Washington Post
Bill Stiritz and Ralston Purina
Dick Smith and General Cinema
Warren Buffett and Berkshire Hathaway
CEOs need to do two things well to be successful over the long term: (1) run their operations efficiently and (2) deploy the cash generated by those operations.
CEOs have five essential choices for deploying capital:
reinvesting in existing operations
acquiring other businesses
issuing dividends
paying down debt
repurchasing stock
CEOs have three alternatives for raising capital:
tapping internal cash flow
issuing debt or
raising equity.
Over the long term, a CEO's decisions regarding which tools to use will mainly determine shareholder returns. Essentially, capital allocation is an investment, and as a result, all CEOs are both capital allocators and investors. Most of the featured CEOs focused primarily on improving the profitability of the existing business first, followed by acquisitions, divestments, and share buybacks. They supported this by mainly tapping internal cash flows and, to a lesser extent, strategically using equity and debt opportunistically.
William Thorndike captures all eight stories succinctly and, more importantly, highlights numerous similar traits and patterns he observed that these eight CEOs exhibited, which resulted in their extraordinary success. We will not steal his thunder and overshare, and we recommend that anyone read his book directly and distill what they have learned for themselves.
As investors in public markets, this provides a valuable framework for assessing the CEOs of the companies we invest in. Similarly, we can apply this framework to build and position Vision Capital Fund for long-term success.
Ultimately, we must recognize that we, too, are a business investing in companies with our own and our partner’s capital, and excellent capital allocation is at the heart of it. As much as we seek to invest in great companies through an ever-expanding and evolving list of quantitative and qualitative traits that we are looking for, we also have to apply the same to our business of building and running an investment fund.
Below are the fifteen traits of the eight “Outsider CEOs” with which we resonated. We strive to emulate these traits for Vision Capital Fund and generally seek them in the CEOs of the companies we want to invest in.
They were outsiders and had an outsider’s mindset, which provided them with fresh perspectives and allowed them to take on the problem/challenge with new approaches.
They were foxes rather than hedgehogs, generalists rather than specialists, and were very good at many things (companies, industries, disciplines) rather than one thing. This helped them connect across fields, providing an outsider’s perspective and allowing them to innovate, which grew to inform their management philosophy.
They developed principles independently that were unique to themselves and markedly different from their peers, often drawing much comment and questioning.
They had fiercely independent minds and consistently made different decisions from their peers, but they were not contrarians for the sake of being one.
They challenged social norms and traditional conventions regarding what should be done. They did not confine.
They continuously adapted, evolved, and improved as the business, markets, and competition changed dynamically.
They were practical and agnostic in temperament and operated away from the financial epicenters, insulating them from the din of conventional wisdom and noise.
They were analytical and did most of the work themselves, often using unusual financial metrics distinctly different from industry norms or conventions.
They were geniuses at simplicity. They could quickly cut through the clutter and zero in on the core elements, which resulted in a single-minded, long-term laser focus on value creation by optimizing free cash flow.
They hired well and were master delegators, pushing decisions to operating levels, but they always made all the capital allocation decisions themselves, thinking dispassionately and probabilistically.
They typically did not relish the outward-facing part, did not attract or seek the spotlight, often with lesser charisma, and were unwilling to court it.
They labored in obscurity and were appreciated by a handful of sophisticated investors and aficionados early on.
They were frugal, humble, independent, analytical, conservative, and bold when they needed to be.
They typically worked out of bare-bones offices, which they were inordinately proud of and generally eschewed perks.
They were devoted to their families, which led to seemingly unexciting, balanced lives, yet in their business lives, they were positive deviants and were deeply iconoclastic.
26 January 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co
Find out more about Vision Capital Fund.
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Check out our book on Investing, Vision Investing: How We Beat Wall Street & You Can, Too. We believe the individual investor can beat the market over the long run. The book chronicles our entire investment approach. It explains why we invest the way we do, how we invest, what we look out for in companies, where we find them, and when we invest in them. It is available via Amazon in two formats: paperback and eBook.
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