In his seminal work, Common Stocks and Uncommon Profits, Phil Fisher spends considerable time discussing how to research individual companies. He named this approach the “scuttlebutt method.” It may sound like an unconventional name, but the concept was enough to convince Warren Buffett, of all people, to change his investing methodologies.
As Fisher described it, the “scuttlebutt method” involves conducting individual research on a company and talking to everyone associated with the company, its competitors, its suppliers, and its customers to gain firsthand information to better understand the company and its business prospects.
Scuttlebutt research is important because it is primary research, which enables you to develop higher conviction in your ideas and to better withstand volatility in the company’s share price.
Today there are a wide array of ways that professional investors can gain scuttlebutt.
You have probably heard of “expert networks.” In a nutshell, institutional investors can pay hundreds or thousands of dollars for a brief phone call with an “expert,” whether it’s a doctor with research expertise on a biotech drug or a former executive that can give insight into the credit card industry and how it is being impacted by Stripe, to name just two examples.
Most of us don’t have thousands of dollars to spend on “expert networks,” but there is another more cost-effective option. You can use the internet!
First, as Alex Jones recommends below, follow the companies of the stocks you own on LinkedIn to gain insight into company and industry news.
Jones also mentions podcasts as a great resource. When I was researching Drive Shack (DS), a leader in the traditional and entertainment golf market, I listened in to several episodes of the Golf Biz Podcast.
It helped me get a sense of industry trends.
It’s worked for other investors like Andrew Kuhn of the Focused Compounding hedge fund, who uses podcasts to conduct industry research.
Want to get a sense of whether a company that you follow is hiring (which probably indicates future growth)? You can use Visualping to set up a free account to monitor your company’s career page with daily alerts that highlight changes.
Want to determine who a company’s competitors are? Ryan Reeves and Eric Jhonsa have great tips, which are shown below.
Other Scuttlebutt Tips
Besides the investing tips I’ve outlined above, here are several others that I’ve found helpful:
- Read Amazon reviews of key products.
- Look at Better Business company reviews.
- Watch CEO interviews on YouTube. After watching the video ask yourself, “Is this a CEO who I would want to associate with?”
- Purchase the product that a company is selling to see how you like it. I was researching Arlo (ARLO) and I purchased one of their high-end cameras from Best Buy. I was able to test out the product and then return it for free.
These may sound unconventional, but they can offer you a lot of insight into the companies whose stocks you’re buying.
Do you have any unconventional research methods that you use for companies?