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The Outsiders

📃The Accompanying PDF

The Outsiders.pdf12352.4KB

🔖How would I describe this book in 1 sentence?

This book describes unconventional (at the time of execution) managerial approaches used by 8 exceptionally successful CEOs of US-based companies in the mid-late 20th century and key decisions made by them to lead companies to extraordinary success.

🗺️What was the role of this book in my journey?

In this book, I discovered several powerful techniques and approaches that you as an entrepreneur or manager can take to develop your own company or business unit. This book opened my eyes to what the role of a CEO in big corporations really is.

I now understand the way of thinking, strategy, priorities, and key activities of a CEO role in a successful growing company.

Although at the moment I cannot fully utilize the knowledge acquired from this book, it confirmed my belief that I should continue developing myself as an investor in my career journey.

💡Key Insights

  1. An extraordinary CEO must have an investor mindset
  2. Capital allocation and asset management are key activities of a CEO to ensure a company's growth
  3. Decentralized organizational structure is one of the keys to company's operational success
  4. Company financial value assessment process is often overcomplicated

🦅Key Principles

  1. Hire well - manage little
  2. Run organizations in a decentralized manner
  3. Be greedy when everyone is afraid, be cautious when everyone is excited
  4. Seek the most efficient ways of capital allocation
  5. Prioritize cashflow over reported net income

✍️Notes

Outsider CEOs performance compared to peers and S&P 500
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Matrix of 8 Outsider CEOs and shared management approaches
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Outsider CEO vs Peer CEO approach comparison
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Outsider CEO Characteristics

  • Frugality
  • Humility
  • Low-frequency media appearance
  • Analytical thinking
  • Contrarian mindset

Key Decisions Made By Outsider CEOs

  • Cut dividends
  • Make disciplined occasional large acquisitions
  • Leverage selectively
  • Buy back a lot of stock
  • Minimize taxes
  • Run decentralized organizations
  • Cashflow over reported net income

Outsider CEO Checklist

CEO should lead capital allocation decisions, not delegate them to advisers or employees.
Determine the hurdle rate—the minimum return necessary to approve a project. The hurdle rate should generally exceed the cost of capital (usually in the mid-teens or higher).
For all investment options available, calculate returns and risk profiles. Rank the by return and risk. Higher-risk projects should have higher returns to compensate.
Make sure you calculate the return for stock buybacks. This should be the hurdle for all acquisitions.
Focus on after-tax returns, since different projects may have different tax properties. Run all transactions with a tax counsel.
Determine acceptable, conservative cash and debt levels for the company. Do not stray outside these margins of safety.
Consider decentralizing your management. How can you reduce staff at corporate headquarters?
Retain capital in the business only if you have confidence that you can generate returns over time that are above your hurdle rate
If you do not have potential high-return investment projects, consider a buyback or paying dividends. Be aware of the tax-inefficiency of such decisions
When prices are extremely high, it's okay to selling businesses or stock. It's also okay to close underperforming business units if they are no longer capable of generating acceptable returns.