The dictionary meaning of the word “Scuttlebutt” means gossip or rumors, though the source could be directed to the ocean sailing ships in which the water used to get stored in a scuttle butt – a cask which upon scuttled through making a hole so that the water could be withdrawn. Since this activity involved many sailors lining up to drink water, they indulged in gossiping and hence the word became the slang for gossip.
Scuttletbutt Investing: All you need to know about?
Originally coined by Phil Fischer, it refers to learning by researching about a company and its fundamental merits even if its means to talk to all the people related to the company and industry in general so that one can be educated enough to make a sound investment. This does not make up for the due diligence and prudent understanding of financials that an investor is expected to do. This philosophy believes in investors who do their own research in gathering information to be able to make informed judgements based on facts and not be biased.
This is key for a couple of reasons:
1) Sometimes one can tend to ignore the key insights of a company when trying to read about a company which otherwise could be avoided. This can be managed by listening to former employees and their experience. Also, a lot could be learnt from the current and past customers of the company. This way they can also learn what makes the competition go for a different customer or switch.
2) This could also act a method of primary research instead of relying on the second hand information through financial documents and other materials. Primary research provides certain amount of authenticity to research.
Practicing the approach
Scuttlebutt investing needs the investor to be obsessed about information. Swami Vivekananda once said, “Think about one idea and make that idea your goal”. This is exactly what the investor needs to do. They should pick an industry or a company for certain duration of time to understand every question and run down every scenario till they eventually practice this philosophy. Following are the points to consider practicing.
If one is just talking and listening to conversation to decide on investing in a stock, then it is not based on factual research. One must get immersed in following the due diligence, financial statements and key facts so that one can decide to even take up the company that they want to further research on. This would enable to frame the right questions to ask, analyze and interpreting the same.
Enough groundwork must be done on the company and the customers, suppliers, vendors and of course the competitors. Also knowing about the profit margins, accounting policies, outlook to investments and debts will ensure that there is enough information captured. Investing time in understanding how the company reacts to its investor in good and bad times also helps.
Social Media Connection & Employee relations
Companies are giving vital importance to maintaining a respectable presence on social media platforms. Employee welfare and growth is now imperative for building a strong brand with growing awareness & demands.
Advantages of Scuttlebutt Investing
- Gossip can sometimes be blessing in disguise and if one is lucky, the information gathered could very well be true to understand the valuation of a company.
- Sometimes what is obvious is not true, so though the overall performance of the company may be good, only when one gets into the nuances, they would understand the reality.
- Discussions with the people involved in the company and knowing about their suppliers, competitors and their plans to stay ahead would also help in knowing their growth plans.
However, one must remember that with opinion comes confusion, so all data must be taken with a pinch of salt and focus must be on receiving insights not information to make scuttlebutt investing help earn you more!