To really understand well-executed share buybacks at work, I strongly suggest you study the king of buybacks, Henry Singleton, the CEO of Teledyne Technologies from 1961 to 1986. Singleton’s success as a business leader and investor, along with his track record of utilizing buybacks, has made him a prominent figure in discussions on the topic.
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In the book Money Masters by John Train, Buffett said “The failure of business schools to study men like Singleton is a crime. Instead, they hold up as models executives cut from a McKinsey & Co. cookie cutter.” Buffett continues by saying he considers Henry Singleton has the best operating and capital deployment record in American business. Prem Watsa, the CEO of Fairfax Financial, in his 1997 shareholder letter called Singleton the Michael Jordan of buybacks.
With such accolades, what has Singleton accomplished? In his 1997 letter, Watsa wrote that “Henry began Teledyne in 1961 with approximately seven million shares outstanding and grew the company through acquisitions while shares outstanding peaked in 1972 at 88 million. From 1972 to 1987, long before stock buybacks became popular, Henry reduced the shares outstanding by 87% to 12 million. Book value per share and stock prices compounded in excess of 22% per year during Henry’s 27 year watch at Teledyne – one of the best track records in the business.”
The book The Outsiders by William Thorndike, a book a highly recommend, has a whole chapter on Henry Singleton. Thorndike calculated that a dollar invested with Singleton in 1963 would have been worth $180.94 by 1990, more than twelvefold outperformance versus the S&P 500. Singleton delivered a remarkable 20.4% compound annual return to his shareholders compared to an 8% return for the S&P 500 over the same period.
In the 1960s Singleton used Teledyne’s expensive stock price to acquire 130 companies. During that period Teledyne was trading at an average P/E north of 20 to acquire companies around 12 P/E. That’s accretive to the shareholders. Then in the 1970s, when Teledyne’s stock price dropped, he bought 90% of the shares across eight significant tender offers.
Singleton was known for his strategic capital allocation decisions, including extensive use of share repurchases. Singleton’s approach to share buybacks was rooted in his belief that management should focus on allocating capital in a manner that maximizes shareholder returns.
Singleton was an excellent steward of shareholder capital. He needs to be studied and emulated. His singular focus was to maximize returns to shareholders. He achieved that by mastering capital allocation decisions. When his stock was highly-priced, he used stocks to acquire companies. When his stock was priced at a discount, he was an aggressive purchaser. Singleton left a rich legacy in the field of capital allocation. His approach to value creation, including share buybacks and disciplined capital allocation, should be studied and emulated by business leaders and investors.
