Bonjour,
I wanted to tell you the story of one legendary stock of the
60’s, 70’s and 80’s: Teledyne.
I was not born then, or as my father likes to say,
not even in the most audacious plans.
Let’s go back to Teledyne.
Through the leadership of its CEO: Henry Singleton, Teledyne
started in 1960 as a start-up centred on the emerging field of
micro-electronics and control systems.
They grew the business by acquisitions. At the end of their
first year, they already had 400 employees!
Business expanded into aerospace (an emerging industry then).
An IPO followed in 1961 when sales were around $4.5m and net
income $60k.
Over the next few years, aided by the growth of this
industry and new acquisitions, Teledyne grew rapidly, entering the new fields
of micro-waves and electrical products. At the end of 1964, the stock price had
reached $15.
In 1965, the firm won its first defence contract and the
shares jumped to $40. It moved into the field of optics, building the glass of
the Apollo spaceships for instance.
Over the next years, Teledyne expanded into foreign
countries such as Europe and new fields such as consumer products,
high-fidelity speakers or oil drilling equipment… At the end of the decade, the
group had acquired more than 150 firms and operated in 120 locations.
In 1969, sales were $2.7bn (remember, these are 1969
dollars), a massive number for those times.
2 stock splits followed and as Teledyne entered the 1970’s,
its stock price was then a healthy $40. New sectors were entered such as
consumer finance or insurance businesses.
The conglomerate structure was formally created, with
different groups being allocated capital when returns where deemed attractive
and other groups sold or deprived of fresh funds when returns were thought too
low.
Hang on, it gets better…
In the bear market of the 1970’s – which was not a bear
market because price dropped but rather because inflation was so high and
prices of equities stagnated (you would have lost money in real terms), their
share price went from $40 to $8.
The management of Teledyne did not bail: they kept investing
and bought back shares massively, from $8 to $40. Buying back shares was
unprecedented at the time, people thought Singleton was crazy!
At the end of the 70’s, the share price rose to $175, a more
than 4x growth. Nice!
The peak for Teledyne was reached in the 80’s when the share
price reached an all-time-high for the stock market of $388.
Singleton then retired in 1986 from his CEO position and
1991 as chairman. The 80’s signalled the end of conglomerates as investors
chose to favour companies focusing on their “core business”.
From more than 150 companies in the portfolio at the peak,
Teledyne reduced this number to around 18 by the start of the 1990’s. Several
operational mishaps in defence contracts led to costly settlements with the US government
and contributed to Teledyne not being able to reinvest as much as before into
profitable ventures. The company sold businesses and broke itself in several
parts to fend off predators.
A Teledyne Technologies company still exists but the biggest
portion of the old Teledyne still lives within Allegheny Technologies.
Its spirit survives: Allegheny share price rose 50x from the depth of
the 2000-2003 bear market towards the peak of the 2003-7 bull market.
Still there? :-)
Why this long story?
Have you noticed the factors of success for Teledyne?
- Proven manager allocating capital to various parts of the
conglomerate
- Allocating capital where returns are attractive
- Diversification of the portfolio all along the history:
from new industries to new geographies, never being hostage to one bet
- No panic in the bear market: they stayed invested, did not
sell businesses at a low price AND they even doubled up by buying back shares.
And some reasons of the demise:
- Just one decision maker (he also bore a name which
matched, didn’t you notice?)
- Concentrating the portfolio resulting in a few bets that
turned awry
- Ignoring the old factors of success for the new shiny
fashion of the day
Bonus: the very (choose your
own adjective) Mr Singleton
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