On a research trip to the U.K., Christian Deckart, co-manager of our Global Small Cap Fund, visited an agrochemical seed distributor we own. Using your own eyes can be a great source of scuttlebutt. That’s me in front of HDFC in the photo). finishing most management calls by asking who they believe is their best competitor (I did this with Indian banks and HDFC Bank was consistently mentioned, a company we now own in the Emerging Markets Equity Fund.calling a CEO’s former place of work and asking for a reference and. searching online for customer win announcements and then calling these customers directly, usually one to two years later to see if they are happy and satisfied with their choice-which we did with Constellation Software’s customers in 2013.Some examples of creative scuttlebutt could include: There is significant creativity to the scuttlebutt process, particularly in navigating the myriad of ways to best find the information you’re looking for. So what began as scuttlebutt turned into a current holding in our Global Small Cap portfolio. By talking with Oslo Børs, we got to know both exchanges better and came to realize Oslo Børs was actually a better opportunity with a much stronger management team. For example, while doing scuttlebutt on a Latin American exchange, we talked to another exchange in Scandinavia with a similar business model called Oslo Børs. If we have three independent sources saying positive things about a company, that feedback is always going to carry more weight than anything heard directly from the company itself.Īdditionally, corroborating everything management tells us not only reduces risk, it can also unveil new ideas and opportunities that might otherwise have remained undiscovered. What to target all depends on the unique demands of the situation.Īsking other companies who the good operators are in their field, who's doing it right, how, and why, gives us a better understanding of where a particular company fits within that industry. Even in models heavily tilted towards consumers, like a grocery store, we often get more worthwhile information from talking to the competitors, who can see the bigger picture, versus talking to a shopper in the produce aisle-although we’ll do this too. 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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