He Thought His Own Stock Was Too Cheap, So He Bought 90 Percent of It
Over 12 years he repurchased 90 percent of Teledyne in eight offers, a move many on Wall Street saw as a sign of weakness, and earned a 42 percent annual return.
Founders · #431 How Henry Singleton WorkedIn 1972, Henry Singleton, the founder and chief executive of Teledyne, a company with about 130 business units, said he had made up his mind.
"I've been thinking about it, and our stock is simply too cheap," he said. "I think we can earn a better return buying our shares at these levels than by doing almost anything else. I'm going to announce a tender."
A tender offer meant Teledyne would offer to buy its own shares back from stockholders at a set price. Singleton, a former electrical engineer with a doctorate from MIT who had started Teledyne, had cash piling up. The year before, about 129 of his roughly 130 business units had been profitable, and all that cash was sent to headquarters for him to invest.
What he did next became one of the boldest bets on a company's own stock in American business. Starting with that 1972 offer and continuing for 12 years, Singleton bought back an astonishing 90 percent of Teledyne's shares in eight separate offers. Shareholders who held on earned a 42 percent compound annual return on those repurchases.
At the time, almost no other chief executive would do what he did. Few companies repurchased their own shares, and many on Wall Street treated the move as an admission that a company had run out of good ideas for growth.
Singleton ignored the orthodoxy. He was famously silent, so reluctant to speak with analysts or journalists that people called him the Sphinx. He paid no dividends, never split the stock, and believed the best use of cash could be his own shares if the price was low enough. He described buying cheap stock as self catalyzing, like coiling a spring that would surge forward later to realize its full value. Investor Charlie Munger later said, "No one had ever bought his shares as aggressively."
By 1997, many large American companies had announced big share repurchases. When an investor who had held Teledyne shares for years asked Singleton about those repurchases, Singleton, who died in 1999 of brain cancer at 82, answered, "If everyone's doing them, there must be something wrong with them."
Questions people ask
What exactly is a stock buyback?
A buyback is when a company uses its cash to buy its own shares from investors and retires them. With fewer shares left, each remaining share owns a slightly bigger piece of the company's future earnings and cash. Companies usually do it through a tender offer, where they offer a set price, or by buying gradually on the open market.
Why did Wall Street once think buybacks were weak?
In the 1960s and early 1970s, investors expected growing companies to plow cash into new plants, products, or acquisitions. Spending money on your own stock looked like an admission you had no better ideas. Attitudes changed in the 1980s and later, when economists argued that returning cash can be disciplined if a stock is cheap.
What happened to Teledyne?
Teledyne stayed independent under Singleton until 1990, when he stepped back from day to day leadership, and later split into three public companies in 1999. One of them kept the Teledyne name and still exists today as Teledyne Technologies, a maker of electronics, imaging sensors, and aerospace equipment.