1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Rupert Hargreaves
Rupert Hargreaves
Articles (593)  | Author's Website |

All Investors Should Act Like Henry Singleton

The founder of Teledyne was probably the best investor of all time

June 08, 2018

Of all the great investors and capital allocators of all time, Dr. Henry Singleton stands head and shoulders above the pack.

Over his relatively short career, Singleton turned a struggling military contractor into one of the world's largest conglomerates achieving outstanding returns for himself and other investors at the same time.

Warren Buffett (Trades, Portfolio) on steroids

The best way to describe Singleton has to be "Warren Buffett (Trades, Portfolio) on steroids." In fact, if this man had started at the same age as Buffett and not retired, it is entirely possible that he would have achieved the same, if not better, record than the Oracle of Omaha.

Singleton’s crowning achievement was the Teledyne empire, which he managed from its birth in the early-1960s to 1986. To give some example of the kind of returns he was able to achieve, from 1969 through to 1978 Teledyne’s revenue jumped 89%, net profit more than triple and earnings per share, thanks to the constant tender offers, soared 1,226%. Between 1961 and 1986, shareholder equity increased at a compound annual growth rate of 29.6% -- the sort of returns even Buffett could be jealous of.

Singleton was able to produce these returns because he was a perfect value investor. He really understood investor psychology and how to take advantage of Mr. Market to achieve the best performance for himself and his shareholders.

During the 1960s, Singleton used what he called "Chinese paper," or Teledyne’s own, high-priced stock to buy a selection of over 100 companies, which were then left to their own devices to grow and return cash to the parent holding company.

Then, throughout the '70s as conglomerate businesses fell out of favor, Singleton acted aggressively to repurchase the shares issued during his acquisition binge. As he later described in an interview:

"In October 1972 we tendered for 1 million shares, and 8.9 million came in. We took them all at $20 and figured that was a fluke and that we couldn't do it again. But instead of going up, our stock went down. So we kept tendering, first at $14 and then doing two bonds-for-stock swaps. Every time one tender was over the stock would go down, and we’d tender again, and we’d get a new deluge. Then two more tenders at $18 and $40."

And much like Buffett, Singleton also refused to pay dividends, instead declaring in Forbes in 1979, "Our people don’t want any more income. They want to see increases in the book value and ultimately in the price of the stock when the underlying buildup in values is reflected."

Singleton knew he could achieve a return on equity of 20% or more by reinvesting Teledyne's funds, so why should he pay it out to investors to be taxed twice and the frittered away?

Under the radar

Perhaps it was a gift that Singleton wasn't that well known when he was building Teledyne. If he was, he might have struggled to buy back stock cheaply -- just as Buffett is now, he is a household name.

The Teledyne story is fascinating because it is a fantastic example of how you can create wealth by waiting for the perfect opportunities, selling when the market is high and buying when it is low. It is also a great example of the power of cash generative, steady businesses, and the long-term impact they can have on wealth creation. Singleton only brought established companies and then used the money they produced to acquire others -- a strategy just not possible if you're investing in speculative growth stocks.

This is also a story of how it's never too late to start building wealth. Singleton started Teledyne after a successful career at Hughes Aircraft, North American Aviation and then Litton Industries, where he ran the electronics equipment business until 1960. When the opportunity to snap up Teledyne -- a failing military contractor which had recently lost its most significant contract -- arrived, Singleton jumped on it and turned it into one of the most successful business stories of the past centuries.

To put it another way, Singleton was a master of lying in wait for opportunities and then acting, when he did, with extreme conviction.

Disclosure: The author owns no stock mentioned.

About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

Visit Rupert Hargreaves's Website


Rating: 5.0/5 (4 votes)

Voters:

Comments

vgm
Vgm - 3 months ago    Report SPAM

Excellent topic. Thanks for the stimulation.

Just to add a couple of things, Buffett described Singleton as the greatest capital allocator of all time. And Singleton is one of the 8 unconventional CEOs in Thorndike's wonderful book, The Outsiders, also praised by Buffett.

Recently, The Singleton Foundation was set up with the goal of improving financial literacy:

https://singletonfoundation.org

Please leave your comment:


Performances of the stocks mentioned by Rupert Hargreaves


User Generated Screeners


blovedayBest Backtest Results
muhua.huangmaster
mathew94Penny
mathew94Earning1Month
ralphdQuality Growth
salvatore34stock screener 2.0
DBrizanall 19SEP2018 942P
HOLKLSUEquity Income 2018 Q3 Energy a
althekear4+%20star,%20dividend%20champs
althekearQuality%20Growth
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat

{{numOfNotice}}
FEEDBACK