I finally got around to reading Warren Buffet’s February 24th letter to his shareholders recently. You can read the entire annual letter here. Or click here for the highlights from an interview on CNBC. It’s his 53rd annual letter.
I’ve never considered myself a big Warren Buffet groupie, but this 16 page letter might have changed my mind. First, it’s funny! For example, Buffet got my attention when he compares a CEO’s penchant for mergers and acquisition to the raging hormones of a teenager.
Second, his letter provides an entire lesson in economics and business investing. Impact of the tax code changes? Value investing? It’s all here. School is in session.
Finally, the shareholder letter is worth a read because it points the way to a better style of managing your own company.
Impressed with the content of the letter, I went out to look for a few books recommended by Mr. Buffet. There are a few good ones on the list but I choose “The Outsiders“. It’s the story of 8 outlier CEOs that absolutely hit it out of the park in running their own companies.
How would you rank a list of CEOs? What’s the equivalent of RBI for a CEO? Is it the growth of the the company? Employee satisfaction? Who would you call the Babe Ruth of CEOs? It’s something the CEOs in my CEO peer group here in Honolulu think about.
Author William Thorndike argues (à la Warren Buffett) that CEOs can be ranked by return on investment for their shareholders. The 8 CEOs in his book significantly outperform the market and also fellow CEOs in their industry.
Thorndike goes on to analyze the strategies and tactics employed by each of the CEOs that enabled them to significantly outperform both their counterparts and the market as a whole.
In short it’s fascinating reading. If you’re a CEO interested in a more strategic approach to growing your business, this might be the book for you.
I spend a lot of time working with small and medium sized business CEOs regarding operations (how to hire, how to fire, succession planning, etc). This book dives into the other tool of the CEO’s arsenal, capital allocation. In short, it’s how to deploy the capital generated from the successfully run operations. Is it better to pay a dividend or buy another company? Buy new equipment to start a JV with another firm? The book argues there are five options in front of a CEO for capital allocation. It’s a topic that my CEOs have started to look to as the economy continues to improve.
I’ll post more on capital allocation another time. If you have the chance, pick up the book. It’s fascinating. Did you know the top performing CEO by this standard, the Babe Ruth of generating value for shareholders, outperformed the next 100 CEOs — COMBINED! That’s impressive. Take a look at the book.
Aloha and best regards,