Book Review – “The Outsiders”

“The Outsiders” is another book recommended by Warren Buffett in his 2012 Shareholder’s Letter on top of “Investing Between The Lines”. In the letter, he comments, “The Outsiders, by William Thorndike, Jr., is an outstanding book about CEOs who excelled at capital allocation. It has an insightful chapter on our director, Tom Murphy, overall the best business manager I’ve ever met.” Buffett, being as modest as always, declines to say that he has been featured in the book as well.

The book is about how eight CEOs went against the norm and created enormous success, both for the company and the shareholders. The CEOs are quipped as “outsiders ” by the author as they are unassuming and do not pander to Wall Street’s expectations. These CEOs consistently achieved extraordinary results by constantly zigging while their peers zagged. If you think Jack Welch was an extraordinary CEO, you have not met or read about these eight individuals (except the 8th guy, I think). They are:

  1. Tom Murphy from Capital Cities
  2. Henry Singleton from Teledyne
  3. Bill Anders from General Dynamics
  4. John Malone from TCI
  5. Katharine Graham from The Washington Post
  6. Bill Stiritz from Ralston Rurina
  7. Dick Smith from General Cinema
  8. Warren Buffett from You-Know-Where

These CEOs followed a virtually identical blueprint for success. They were against paying dividends as they are tax-inefficient due to double taxation at both corporate and individual levels (in the US),  made disciplined acquisitions, used leverage selectively, bought back a lot of their shares, ran decentralised organisations and focused very much on cash flow instead of earnings. However, the blueprint is not a strict formula to be followed. For example, it may not be wise to buy back shares when the company is overvalued. The right capital allocation decision varies according to the situation at any given point in time.

Do read this book to find out more. I certainly enjoyed reading this book and I am sure you will too.

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