Henry Singleton is one of the greatest investors and businessmen who ever lived. Over his career, he grew a small military contractor into one of America’s largest corporations achieving a staggering return for shareholders along the way.
Teledyne was born in the early 60s by the acquisition of a single company. Henry Singleton then used what he called ‘Chinese paper’, or, in other words, Teledyne’s own stock to buy up around 125 (or 145 or 130 there are several different estimates) other companies. By the mid-70s, these bolt-on acquisitions had driven Teledyne’s revenue to $1.7 billion.
Revenues of $1.2 billion were reported for 1970. By 1974, revenues hit $1.7 billion. Two years later, revenues had jumped a further 12% to $1.9 billion and by 1979, revenues surged to over $2.6 billion. 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 and buybacks, soared 1,226%.
- Part one: The master of capital allocation
- Part Two: Teledyne
- Part three: Teledyne the downfall
- Part four: Five strategies for business success
Teledyne was a huge conglomerate but the company wasn’t without its troubles. An insurance subsidiary, Argonaut became entangled in medical malpractice lawsuits during the 1960s and as a precaution, Singleton converted all of his insurance liabilities into cash and waited for the coming storm of legal claims.
Value investing with Henry Singleton
Luckily for Singleton and Teledyne, the storm never came and Singleton began using the cash to invest in the stock market, specifically, Singleton started buying the shares of other conglomerates, which he believed were undervalued.
This move sent Wall Street into a frenzy. Speculation about Singleton’s ambitions was rife and many believed he was about to embark on a acquisitions spree. But this was not the case. In fact, Singleton was only buying the shares of businesses he believed were good businesses trading at attractive prices, he had no intention of buying out whole businesses as it would be an extremely expensive affair, as Singleton explained in an interview with Forbes published at the end of February 1978:
“There are tremendous values in the stock market, but in buying stocks, not entire companies. Buying companies tends to raise the purchase price too high. Don’t be misled by the few shares trading at a low multiple of six or seven. If you try to acquire these companies the multiple is more like 12 or 14. Management will say: ‘if you don’t pay it, someone else will.’ And they are right. Someone else does. So, it’s no acquisitions for us while they are overpriced. I won’t pay 15 times earnings. That would mean I’d only be making a return of 6% or 7%. I can do that in T-bills.”
“As for the stocks we picked to invest in, the purpose is to make as good as return as we can. We don’t have any other intentions. We do not view them as future acquisitions. Those who don’t believe me free not to do so, but they will be wrong in the future as they have been about other things concerning Teledyne in the past.”
An investing lesson from Henry Singleton. Buy cheap and only buy when the returns on offer are suitably attractive.