Singleton and Teledyne

By Ramesh Akkineni

Leon Cooperman on Henry Singleton

ER: What was your first great investment?
LC: I think it was my discovery of Teledyne and its extraordinary CEO Henry E. Singleton. In my opinion Dr. Singleton was one of the greatest managers in the annals of modern business history. No less an authority than Warren Buffet called Dr. Singleton “the best operating manager and capital deployer in American business.”
ER: Tell us a little about him.
LC: Dr. Singleton formed Teledyne in the 1959 and throughout the sixties he used the company’s sky high share price to make acquisitions. About 130 in all. The result of all this activity was that during the 1960’s sales and net income climbed from essentially zero to $1.3 billion and $58 million, respectively. Now many managers have done that but what really set him apart was how he reacted when the cycle turned and his stock price declined. Dr. Singleton started buying up his company’s own shares and from 1972 to 1984 he tendered eight times and reduced his share count by some 90%. His ability to buy his stock cheaply and correctly and time the short and longterm troughs is truly extraordinary.
ER: What made him such an extraordinary operator?
LC: In 1982, Business Week ran a critical cover story on Dr. Singleton. It accused him of “lacking a game plan” and of diverting funds from the company’s operating business to allow the chairman to “play” in the stock market. In essence the article portrays the company’s success as a direct result of the acquisition binge and massive share buyback. However the reality is more nuanced. Simply put, Dr. Singleton followed one guiding principal: he allocated capital where it could achieve the highest potential return for a given investment risk. He freely moved between financial assets and real assets. In a letter I wrote to Business Week after the article ran, I outlined five strategies Dr. Singleton followed to foster his company’s development.
ER: What were they?
LC: One, he grew through acquisition when the company enjoyed an unusually low cost of capital through its high share price. Two, he managed his business extremely well. Without any acquisitions he grew net income from approximately $60MM in 1970 to over $400MM in 1981. And his return on equity ranged from 25% to 30% during this period. Three, he repurchased his security when it was cheap. By judiciously buying back stock in the seventies, earnings per share grew twice as fast as net income. Four, he recognized the long-term attractiveness of stocks over bonds. As the head of an insurance company, he had a responsibility to prudently invest his firm’s capital and while his competitors were buying bonds, Dr. Singleton bought common stocks. And finally five, he built cash for uncertain times. He consistently positioned his company well and had the appropriate liquidity when he needed it.

Popular posts from this blog

It Pays to be a Nervous Wreck

By Ramesh Akkineni
from an article in Livemint Two weeks ago, Microsoft issued the sort of quarterly report usually seen of a company in finest mettle. Redmond’s sales were up 15% and profit double that, excluding certain deferrals. And the rest of the year, it projected, would be just as sanguine—certainly unlike in the economy as a whole. Elsewhere, that would be a mandate for staying the course. In Redmond, though, they were crossing off days on their calendars, waiting until Friday, the first day of February and thus the first opportunity Microsoft would be able to truthfully state, “Okay, Yahoo, it’s been a year since we talked to you guys; where’s the beef?” Microsoft remains obsessed about Google because it reads the same things everyone else does about how Google’s style of free, “in the cloud” computing means the slow and steady decline of Windows and Office. That’s a technical debate, one in which both sides have good arguments. But....
Read more

Korean Model

By Ramesh Akkineni
from an article by Ha-Joon Chang in the Guardian In my lifetime Korea has lived through one of the greatest development miracles – half a century ago, its annual per capita income was around £50, less than half that of Ghana at the time. Today, it stands at £12,000, putting it on a par with Portugal and Slovenia. How was this possible? Korea of course did things that most people agree are important for economic development, such as investment in infrastructure, health and education. But on top of that, it also practised many policies that are now supposed to be bad for economic development: extensive use of selective industrial policy, combining protectionism with export subsidies; tough regulations on foreign direct investment; active, if not particularly extensive, use of state-owned enterprises; lax protection of patents and other intellectual property rights; heavy regulation of both domestic and international finance. The Korean experience shows that sustainabl...
Read more

The Need for a Media Regulator/Media Archive/Registry

By Ramesh Akkineni
The Recent Events in Andhra show how easy it is for a News channel to destabilize the society. I think News channels are like financial derivatives which should be controlled and regulated.There should be a national media registry/archives which record every popular channel continuously.This will be similar to a 'black box' that an airplane keeps. It will ensure accountability and check the channels which 'manufacture' the news. The investment needed to start a channel has come down to about 10 crores and enable many people to start their own channel.The amount of havoc that a channel can do is immensely greater. With a 10 crore investment I can influence policy, cause 100s of crores damage to my rivals, destabilize society etc. This shows that news channels are in the category of 'fire arms' or a 'driving license' where the user can cause significant damage to others by improper use. If a society has to be stable, we must reduce the points of failure. I...
Read more