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Teledyne and Dr. Henry Singleton, Case Study In Capital Allocation

By Brian Langis. Originally published at ValueWalk.

“[Warren Buffett] considers that Henry Singleton of Teledyne has the best operating and capital deployment record in American business.” – John Train’s The Money Masters

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Henry Singleton

Henry Earl Singleton, Henry Singleton, Conglomerates, Teledyne, Inc, largest holders of ranchland, American electrical engineer, business executive, rancher, land owner, ITT Corporation, Allegheny Teledyne, great investors, compounding, acquisitions, MIT, capital allocation, capex, dividends, share buybacks, synergies, "Henry Singleton of Teledyne has the best operating and capital deployment record in American business", Buffett, Berkshire

Below is a massive case study of Dr. Henry Singleton and Teledyne. The document states it was edited by John Chew from CSInvesting.org, a great blog to follow. All the credits goes to him. Not a lot of people have heard of Henry Singleton, a person that Buffets consider the best one the greatest capitalists and capital allocators of all-time. An investor who put money into Teledyne stock in 1966 achieved an annual return of 17.9 percent over 25 years, or a 53x return on invested capital vs. 6.7x for the S&P 500, 9.0x for GE and 7.1x for other comparable conglomerates. Here’s the document:

Teledyne and a Study of an Excellent Capital Allocator, Mr. Dr. Henry Singleton

Introduction

Many students of investing know about the great investment record of Warren Buffett but few even know of the man Buffett called one the greatest capitalists and capital allocators of all-time, Dr. Henry Singleton, who built Teledyne Corporation from scratch during 1960 to 1986.

The best investors are avid students of history of the market, companies, and great investors. The more you learn from others, the less expensive your own tuition will be. Not to study the Teledyne story and the managerial success of Dr. Henry Singleton and his management teams would be tragic.

Excerpts are from the book, Distant Force, A Memoir of the Teledyne Corporation and the Man who Created it by Dr. George A. Roberts (2007).

Dr. Henry Singleton was more than just a great capital allocator, he was a visionary, entrepreneur, and excellent business person who believed that the key to his success was people—talented people who were creative, good managers and doers. Once he had those managers in place, he gave them complete autonomy to meet agreed upon goals and targets.

He and his co-founder and initial investor, George Kozmetsky, bootstrapped their investment of $450,000 into a company with annual sales of over $450 million, an annual profit of some $20 million, and a stock market value of about $1.15 billion.

An investor who put money into Teledyne stock in 1966 achieved an annual return of 17.9 percent over 25 years, or a 53x return on invested capital vs. 6.7x for the S&P 500, 9.0x for GE and 7.1x for other comparable conglomerates. Teledyne’s investors were rewarded with a triple whammy of increasing earnings with a shrinking capital structure along with an expanding P/E ratio. As the single largest investor in Teledyne, Dr. Singleton chose to make money alongside his fellow investors not from them. He never granted himself options like the heavily compensated Michael Dell of Dell, Inc (DELL), for example.

Dr. Singleton thought independently while making astute capital allocation decisions, he chose the right managers and aligned them with the proper incentive structure, and he imposed strict capital allocation on his operating companies. Managements of those companies were encouraged to focus on generating high margins, cash flow and with returning excess cash to headquarters.

There are many lessons to be learned from studying a great businessman like Dr. Henry Singleton. Unfortunately, no business school—that I know of—has done a case study on the Teledyne story. You will read several articles on Mr. Singleton and Teledyne including a case study and letter written by an investor in Teledyne, Mr. Leon Cooperman. Then you will learn more about the company from an insider, Mr. George Roberts, before pondering several questions.

Warren Buffett and Charlie Munger on Business and Chess Master, Dr. Henry E. Singleton

“Henry Singleton has the best operating and capital deployment record in American business…if one took the 100 top business school graduates and made a composite of their triumphs, their record would not be as good as Singleton’s – Warren Buffett, 1980.


Sharing Buffett’s admiration for Henry E. Singleton, Charlie wonders, “Given the man’s talent and record, have we learned enough from him.”

Henry E. Singleton (1916- 1999)

Singleton was co-founder of Teledyne, Inc. and chief executive of the Los Angeles-based conglomerate for three decades. He attended the Naval Academy, then transferred to MIT where he received Bachelor’s, Master’s and Ph.D. degrees in electrical engineering. An enormously skilled chess player, he was only 100 points below the Grandmaster level and could play without looking at the board.

From 1963 to 1990, Teledyne returned an astounding 20.4% compound annual return to shareholders—a period in which the S&P 500 returned 8.0%. Adroitly repurchasing 90 percent of Teledyne’s outstanding shares primarily between 1972 and 1984, Singleton built a record as a manger and capital allocator with few peers in modern business history.

See the full PDF below.

To find out more about Dr. Henry Singleton, I did post this article last year: Henry Singleton Forbes 1979 Article

Dr. Singleton was also featured in The Outsiders by William N. Thorndike, among 7 other great investors. It’s one of the best investment book I’ve read and if you haven’t it should be on the top of the list.

Article by Brian Langis

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