Book Review: The Outsiders - Eight unconventional CEOs and their radically rational blueprint for success
”It is impossible to produce superior performance unless you do something different.” — John Templeton
The Outsiders is about 8 CEOs who have enjoyed far better returns on company stock than their peers or the market due to their ability to allocate both financial and human capital.
What we liked about this book is - capital allocation is something rarely talked about by the investor community. Most people talk about the hot sectors, companies trading in those segments and following the herd mentality. Great CEOs make capital allocation decisions, delegate operations to COOs and have a decentralised organisation, which gives them time to think and allocate from a holistic perspective.
In this book, author Will Thorndike brings to us the wisdom of a successful career in investing, closely evaluating the performance of companies and their leaders. You may not know all their names, but you will recognize their companies: General Cinema, Ralston Purina, The Washington Post Company, Berkshire Hathaway, General Dynamics, Capital Cities Broadcasting, TCI, and Teledyne. In The Outsiders, you’ll learn the traits and methods—striking for their consistency and relentless rationality—that helped these unique leaders achieve such exceptional performance.
Though we found the book repetitive, here are the learnings which you can implement if you are an entrepreneur:
Capital Allocation should be CEO led and never be delegated.
Be Greedy when others are fearful - Do buybacks when there's blood in the street.
Funding acquisitions/buybacks with debt.
Determine acceptable cash and debt levels and stick by them.
Calculate returns for all internal and external investment alternatives, and rank them by return and risk - Be conservative.
Run operations efficiently and reinvest your earnings if they can generate higher ROCE
Charisma is overrated - most of the CEOs were camera shy or never wanted to be in the limelight.
Long Term Focus- Eschewing short term gains for long term investments.
Only if you do not have a potential high return investment project, pay dividends.
When prices are high or market frenzy is going on, don't hesitate to sell underperforming businesses.
The above checklist is a tool that can help you as an entrepreneur take better business decisions and embrace uncertainty with fresh eyes