How Skilled Capital Allocators Compound Capital, with Will Thorndike – [Invest Like the Best, EP.36]

This week’s guest is Will Thorndike, an author and investor whose book The Outsiders is an all-time favorite of mine. Our conversation is in two parts. First, we dive deep into the lessons of his 8-year research project studying CEOs who were master capital allocators. These CEOs include Henry Singleton, John Malone, Tom Murphy, Katherine Graham, and Warren Buffett. We discuss how these CEOs tended to be contrarians on topics like dividends, buybacks, acquisitions, and the use of debt. As we go through each of the tools in the capital allocators toolkit, you’ll hear several useful lessons for running or evaluating a business.

In the second part, we cover Will’s career in private equity. Will founded and continues to run Housatonic Partners, investing in buyouts, recaps, and search funds. Will has been one of the most active search fund investors for decades, and given how much time I’ve spent in past episodes on the searchers or operators in the micro-cap, permanent equity space, it was great to get the perspective of an experienced LP. As always, we also take time to survey the dangers and opportunities in today’s private equity market.

Books Referenced

The Money Masters

The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

Double Your Profits: In Six Months or Less

 

Show Notes

2:40 – (first question) –  The first moment when Will realized he was interested in investing as a job

3:32 – The Money Masters

4:07 – What was the journey like that led Will into the private equity space

4:08 – The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

5:19 – How the book started as research projects

9:53 – The ways to spend capital

10:21 – What did Will find as far as the way the CEO’s outlined in his book viewed dividends and how they were best used

11:56 – Will’s take on the future of dividends

15:10 – Moving to buybacks as a way as a strategy

19:01 – What did the 8 CEO’s think of capex and reinvesting in the business as a strategy

23:19 – Why it’s so important to set hurdle rates and stick with them

25:27 – The CEO’s in the book were flexible and opportunistic.  How is that different from CEO’s like an Elon Musk who has a huge grand vision

26:56 – How did the CEO’s use acquisitions as a strategy

30:39 – Double Your Profits: In Six Months or Less

30:49 – The importance of rationalizing your expenditures

32:02 – The right and wrong way to use debt as a public company

34:34 – If Will could pick one of the 8 outsider CEO’s and a business, which ones would he choose

40:41 – Touching on the importance of partnerships to make sure the cash flows are coming and allocated in a productive way

43:54 – Will is asked to talk about the experience of this book and what is like to see it grow into a best seller.

45:02 – If Will had to write another book, what would it be about

47:09 – Shifting to Will’s day job in private equity and how he got involved in search funds

52:50 – Any new investing categories that are on worth exploring

54:13 – What is the state of recaps and buyouts as strategies today

58:33 –  Are there particular industries that have economic characteristics Will screens for or ignores

1:01:23 – Exploring Will’s most memorable day

1:03:01 – The strength of an investment firm is often found in the quality of their investors

1:04:07 – What is and what is Will’s process for evaluating a business

1:07:55 – Kindest thing anyone has ever done for Will.

Learn More

For more episodes go to InvestorFieldGuide.com/podcast.

Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub

Follow Patrick on twitter at @patrick_oshag

 

 

 

FOR ITUNES

For comprehensive show notes on this episode go to http://investorfieldguide.com/xxxxx

For more episodes go to InvestorFieldGuide.com/podcast.

Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.

Follow Patrick on Twitter at @patrick_oshag