Hi there, it's Nik!
Did you know there was a man who invested Warren Buffett-style before Warren Buffett was even born? His name was Philip Fisher, and he was a genius at sniffing out great investments.
In his 1958 book, Common Stocks and Uncommon Profits, Fisher breaks down his formula, which he calls "scuttlebutting." If you don't happen to be born in 1907, like Fisher, you probably have no idea what that means.
The term "scuttlebutt" is mariner slang. A scuttlebutt is a big, wooden barrel with a small hole in it — a "butt" that has been "scuttled." On a ship, the scuttlebutt was the watering hole, both literally and figuratively.
Sailors would come, grab some water, and chat about the latest gossip. Like Fisher being a value investor before Buffett, the scuttlebutt was the proverbial water cooler before said cooler became proverbial!
In investing, scuttlebutting simply means gathering information about a potential investment from various, hopefully chatty sources. Fisher suggests the following six:
- Competitors. No one wants to talk about their own strengths and weaknesses, but their competitors' flaws and features? Game on!
- Customers. Ideally, you're one too. If not, go talk to some! Visit stores, tour a plant, and read reviews online.
- Suppliers. How does the company treat the people it gets its resources from? Are they cheap? Fair? Find out!
- Researchers. Are there any independent studies published about the company's product, HR practices, or impact on the market? Read them.
- Industry-body executives. Trade associations, the chamber of commerce, regulators — these people get rare glimpses into a company's inner workings from a unique angle. Ask them to tell you what they've seen.
- Former employees. Depending on why they are "former" employees, you might want to take their opinions with a grain of salt. Still, previous insiders undoubtedly hold vast, valuable amounts of information about the company they used to work for. Try to access some of that data.
Imagine how much better your understanding of, say, the gaming stocks landscape would be after you took these simple, albeit time-consuming steps.
Sure, it would probably take you several hours spent over a few weeks, but you'd emerge with a much clearer picture of where your money should go.
Go out. Talk to people. No matter how much the markets change, scuttlebutting will always be a good way to find great investment opportunities.
Oh, and by the way, at the 2018 Berkshire Hathaway annual shareholder meeting, Warren Buffett openly praised Fisher's method: "It's a very, very good book. You can learn a lot, you know, just by going out and using some shoe leather."
Happy scuttlebutting,
-Nik
PS: There are 6 more formulas like this one in The 4 Minute Millionaire. The Kindle/PDF version costs just $4. I might be a tad biased, but I think it's a steal. 😁
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