Thursday, January 23, 2014

The Outsiders

Jack Welch is a highly successful CEO, considered by many to be the greatest CEO of our time. But I would argue that he is considered so because of his charisma, charm and media-savvy. There are actually a number of CEOs who have outperformed him in a big way, but are mostly unassuming and shy from the spotlight. Eight of these are profiled in The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success.

For value investors, most of what these CEOs did is not surprising. In terms of capital allocation, they bought back shares when they were cheap, sold when they were expensive, and were prudent in determining how to invest retained earnings. Within operations, they were frugal (as opposed to competitors who lived it up in fancy headquarters etc), efficient and rational. Summed together, these approaches resulted in astronomical share price gains over decades, while managements of the competition were apparently focused on growing firm size.

But where this book can be educational to the value investor is in identifying who these guys were and why they were perhaps able to avoid the "institutional imperative". Also, the book is helpful in discussing the key success factors of the industries in which some of these guys operated, and how their rational approaches allowed them to best the competition.

I was a bit hesitant to read this book because I anticipated what I wrote in the 2nd paragraph to be the case. But I'm glad I read it because I found the elements discussed in the paragraph above to be useful to me. If you're in that category, enjoy!

I can't wait to see the movie as well (trailer below). Who knew so many of these CEOs knew each other as teenagers?!


mmel said...

A great book, indeed, and a surprisingly funny joke there at the end.

Anonymous said...

I'm surprised that you enjoyed reading this book but didn't enjoy Good to Great. Both seem to suffer from the Halo Effect... why did you find this book more useful?

BTW I've been reading your blog for ~ a year now. Great content, thank you.

Saj Karsan said...

Thanks, guys.

Anon, that's a good question; I think the difference is in how this book positions itself. It reads more like a historical account, whereas Good to Great actually says things like "If you do this specific thing, you will accelerate growth" etc.