The Outsiders: How Unconventional CEOs Routinely Beat the Market

the outsiders

Tom Murphy never wanted to run Capital Cities media company the conventional way.

He didn’t want to do things like CBS, 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 newspapers.

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 valuable 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 The Outsiders, 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.

Buffett’s Berkshire Hathaway (NYSE: BRK-B) is another company featured in The OutsidersThe Washington Post (NYSE: WPO), General Dynamics (NYSE: GD) and Ralston Purina are among the other companies the book details. Together, the eight companies featured in The Outsiders 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 The Outsiders, 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 $100k PortfolioIt’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 – click here.

Published by Wyatt Investment Research at