Buy Leaders in Small Ponds, Never Minnows in Oceans

“non-textile acquisition. Our basic concept of unrelated diversifica- tion at that time was to accomplish these objectives: 1. Eliminate the effect of business cycles on the parent company by having many divisions in unrelated fields. 2. Eliminate any Justice Department monopoly problems by avoiding acquisitions in related businesses. 3. Eliminate single industry's temptation to overexpand at the wrong time. Finance the growth of only those divisions which show the greatest return on capital at risk. Rather than overex- pand any division, use surplus funds to buy another business. 4. Confine acquisitions to leading companies in relatively small in- dustries. Never buy a small company in a $5 to $10 billion indus- try. One of my particular "No-No's"—never buy a company that manufactures a product with an electric wire attached—no radios, televisions, washing machines, driers, electric stoves, or refrigerators. 5. Having made a complete analysis of all major manufacturing companies' return on net worth and found that only about twenty-five in 1952 earned over 20 percent on common stock”

“Josten would have been an ideal acquisition for Textron since it fitted our basic concept of being a leader in a relatively small in- dustry. Today Josten is the undisputed leader in the school ring business, and their performance is so superb that their shares are selling at a price/earnings multiple of 12, whereas Textron stock has recently been selling at only 6 times. In retrospect, of the many situations that Textron missed by being too conservative in the price we were willing to pay, the outstanding examples have got to be Tupperware and Josten.”