The Outsiders by William Thorndike

The Rabbit Hole is written by Blas Moros. To support, sign up for the newsletter, become a patron, and/or join The Latticework. Original Design by Thilo Konzok.

Key Takeaways
  1. Most important metric to judge effectiveness of a CEO is the increase of per share value, not growth in sales or earnings
  2. CEOs need to do 2 things to be successful - run their operations efficiently and deploy the cash generated by those operations
  3. Even though the best CEOs came from varied backgrounds and situations, they all tended to:
    • Be iconoclasts - went against the common beliefs of the time
    • Believed capital allocation is a CEO's most important job
    • Increase in per share value is what counts in the long run, not overall growth or size
    • Cash flow, not reported earnings, is what determines long-term value
    • Decentralized organizations release entrepreneurial energy and keep both costs and unhappiness down
    • Independent thinking vital to long-term success and outside interaction with advisers should be minimized
    • Sometimes best investment opportunity is your own stock
    • Believed that with acquisitions, patience is a is occasional boldness\
    • Often frugal, humble, not overly charismatic, analytical and understated people who were devoted to their families
  4. Must study the unusually effective performers (anomalies) to learn from them and improve our own performance
  5. Best capital allocators are practical, opportunistic and flexible. They are not bound by ideology or strategy
  6. Avoiding stupid decisions as, if not more, important than making good decisions. On that same note, avoiding bad industries/businesses just as important as choosing good ones
  7. Provides an incredible checklist in the Epilogue - factors to consider before making a capital allocation decision
What I got out of it
  1. Although these 8 CEOs had varied backgrounds and education, they had many similarities. Namely, they always do the math (which is always straightforward but made with key and conservative assumptions), made strategic share repurchases, were independent thinkers, not concerned about the spotlight or pleasing Wall Street, very patient until the right opportunity appeared and then they pounced, were consistently rational, analytic and pragmatic, had a long-term perspective, and they all felt that their main advantage was not intellect but temperament.