Here on The Value Perspective, we appreciate there may be good reasons we rarely find anybody asking us for holiday-reading tips.
Still, if you have already devoured all the recommendations in our Value books section and were looking for something new and investment-oriented for the poolside, we have been reading a couple of possibilities that between them prompted a reassuring value thought.
Anybody following a value investment strategy needs to be disciplined, unemotional and long-term in outlook – never allowing movements in market prices to influence their actions.
Example 1: Exxon
And we encountered just these characteristics while reading Daniel Yergin’s The Quest: Energy, Security and the Remaking of the Modern World in the shape of Lee Raymond, the CEO of Exxon from 1993 to 2005.
Under his leadership, writes Yergin, the business’s disciplined investment process became “a benchmark against which the rest of the oil industry was measured”. Exxon adopted a long-term view that kept its investment very steady – whether prices were high or low.
Taking a long-term view
“It did not suddenly increase its spending when prices went up or abruptly cut it when prices fell,” Yergin adds. “This reflected Raymond’s own steadiness.
“One of his favourite maxims, whether in boom times or a price collapse, was ‘Easy glum, easy glow’. Don’t get overexcited and hyperactive when prices are shooting up, or overly depressed or catatonic when they’re headed down.”
Example 2: Teledyne
This in turn called to mind a chapter in The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success by William Thorndike, titled ‘An unconventional conglomerateur’.
It focuses on the career and philosophy of Henry Singleton, who cofounded US industrial conglomerate Teledyne in 1960 and then, as its president and chairman, steered it through three decades of success. Underpinning his stewardship were a number of characteristics we rate very highly, here on The Value Perspective, including Singleton’s highly contrarian nature – both with regard to history and convention.
Adapt to market conditions
“What really set Singleton apart and eventually made him a Garbo-like legend was his returns, which dwarfed both the market and his conglomerate peers,” Thorndike writes. “Singleton managed to grow values at an extraordinary rate across almost 30 years of wildly varying macroeconomic conditions, starting in the ‘go-go’ stockmarket of the 1960s and ending in the deep bear market of the early 1990s.
“He did this by continually adapting to changing market conditions and by maintaining a dogged focus on capital allocation.”
In essence, he was hugely disciplined – to the extent that, when he was running the conglomerate’s insurance portfolios, for example, Singleton would take very concentrated positions and allocate money to assets only when they were cheap – a practice that included buying back shares, and even bonds, issued by Teledyne if they were trading at depressed prices.
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This relentless focus on valuation meant that, even though Teledyne was constantly taking over businesses, none was ever acquired for more than 12x its price/earnings (P/E) multiple.
In a similar vein, Teledyne was one of the first companies to look to buy back its own shares – recognising their steep discount versus their intrinsic value – but never for more than 8x their own P/E multiple.
The examples of Raymond and Singleton underline the point that you do not need to be a fund manager or an analyst to have a value mentality – value can also be embraced by the management of any company. That is certainly an idea that engenders a warm feeling inside us, here on The Value Perspective, regardless of what the weather may be like outside this summer.