However, sometimes this information is less important than, say, talking to competitors. For example, it is often helpful to talk to a company’s customer base to understand what drives their buying decisions. How we approach the scuttlebutt process depends on the business model. We make a concerted effort to engage in such conversations in order to gain substantive insights about companies and to then weigh the impact of that information against our investment thesis. As long-term investors, however, we believe scuttlebutt provides us with an edge. Many investors-especially those who have short investment horizons-do not engage in these thorough activities. In his enduringly seminal book of investment philosophies, Common Stocks and Uncommon Profits, Philip Fisher used scuttlebutt to characterize the fastidious process of speaking with a potential investment’s customers, suppliers, business managers, similar businesses, and even direct competitors for information. Not to be confused with insider information, scuttlebutt falls under the “ Mosaic Theory,” which refers to a method of analysis whereby an analyst interprets a mix of public and non-public non-material information about a chosen company in order to derive a more balanced and informed basis for valuation. Eventually it made its way into investing parlance to describe the qualitative, often conversational information investors consider when assessing potential investments-alongside the hard numbers and analytics. Scuttlebutt was originally a nautical term for a ship’s cask where sailors would gather to share gossip-the early equivalent of today’s water cooler. “Go to five companies in an industry, ask each of them intelligent questions about the points of strength and weakness of the other four, and nine times out of ten a surprisingly detailed and accurate picture of all five will emerge.”įunny word, fun to say, but how relevant is it for investors? For us, scuttlebutt is a valuable tool for both due diligence and idea generation.
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