Tom Murphy never wanted to run Capital Cities media company
the conventional way.
He didn't want to do things like
, the TV giant that expanded into entirely new fields,
aggressively acquiring non-media assets including a toy business
and the New York Yankees. Murphy wanted to make sure Capital
Cities focused on what it did best. That meant strictly acquiring
other media companies - radio stations, TV stations and
Murphy ran all of those assets as efficiently as possible,
with no excess fat in the budget. He didn't want bigger. He
wanted to make his company more
than its competitors.
That meant keeping Capital Cities' staff numbers fairly low,
taking cabs to lunch and business meetings instead of hiring a
company limo, even painting only the two sides of an Albany sound
studio that faced the road to cut down on paint costs. Murphy's
cost-conscious ways left Capital Cities with more money to pay
off debt, to acquire other media assets, and to regularly buy
back stock when it was attractively priced.
Every move Murphy made was aimed at providing value for
Capital Cities shareholders. During his 29 years at the helm,
Murphy repurchased nearly 50% of the company's shares - almost
exclusively when they were trading at single-digit valuations. By
doing so, Murphy significantly reduced the number of shares
outstanding, therefore constantly increasing Capital Cities'
earnings per share.
Murphy's unconventional business model resulted in massive
returns for Capital Cities shareholders. From 1966 until Murphy
sold the company to The Walt Disney Co. in 1995, Capital Cities
achieved an average annual return of 20%. The stock outperformed
the S&P 500 by 16.7 times over those 29 years. If you had
$10,000 in Capital Cities stock in 1966, your investment would
have grown to $2.4 million by 1995.
Tom Murphy's strategy for success with Capital Cities is one
of eight winning CEO strategies detailed in the book
, written by William Thorndike, a Harvard graduate and managing
director at the Boston-based private equity firm Housatonic
Partners. It's a book about CEOs who take a different path to
success, achieving it via efficient operations and an extreme
focus on shareholders. Warren Buffett recommended the book to his
shareholders at last year's meeting.
is another company featured in
The Washington Post (NYSE: WPO), General Dynamics (
are among the other companies the book details. Together, the
eight companies featured in
returned an average of more than 21% a year over the course of
several decades. All of them achieved those gains by focusing on
improving cash flow and enhancing shareholder value.
Ever since reading
, we've been searching for stocks with similar traits. And I
think we've found one that meets Thorndike's criteria.
This week Ian Wyatt and I added an "outsider" stock to our
It's an under-the-radar stock that has used regular stock
buybacks to reduce its shares outstanding by 30% since 2000. It's
also a company that is 50% insider-owned - meaning that ownership
is fully aligned with its shareholders' interests.
To learn more about this "Outsider" company - and why we think
it has at least 50% upside -