NOTE: this was a past issue of my weekly newsletter, Timeless Gems. Join my free mailing list so you don’t miss out on future issues.
Today’s gem is this quote from Phil Fisher’s book, Common Stocks and Uncommon Profits, on scuttlebutt research.
I read this book over a decade ago and it was one of the first books I’ve ever read on investing. One thing that stuck out for me was Phil’s “scuttlebutt” approach to researching a company. Basically, it’s an informal method of due diligence where you speak with customers, employees (current & former), competitors, and other people that are associated with the company. You can gather valuable insight, anecdotes, and other information that will help you evaluate the company. Scuttlebutt is meant to be supplemental to the usual due diligence stuff (financials, product, legals, etc).
Scuttlebutt is powerful for a few reasons. Firstly, it will give you important details about a company that just won’t be reflected in the financial statements, presentations, or any other readings. Things like morale, satisfaction, motivations, loyalty to the company or its products, etc. All of these are important to truly understanding a business. Secondly, top-level executives and management will often paint the rosiest picture possible when presenting to investors. But it’s the customers and employees (involved in the day-to-day) that will paint you a much more accurate picture. Lastly, it’s a way to stress test your thesis. Whether it’s a growth projection, an ambitious strategy management is planning or some other major operational change/improvement – employees/customers will know exactly how reasonable or realistic it is.
At Atlasview Equity, scuttlebutt is a part of our research and due diligence process. Though typically, as an acquirer, we can’t speak directly with customers and employees until much deeper into the deal process… we use some other unique techniques that suffice as scuttlebutt research. It’s remarkable what you can learn about a company through informal channels.
If you’re interested in reading more on the scuttlebutt method, check out this article.