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Common Stocks and Uncommon Profits

What “Scuttlebutt” Can Do?

In this chapter, Philip Fisher introduces us to the concept of ‘Scuttlebutt’. According to him, the most logical method of investing in a potentially high return generating stock is by gathering information about that company from trustworthy sources.

 

We should acquire accurate information about a company's production, technology, yearly revenue, sales, and research & development, along with proper data about the company's executives, chief, and its directors.

 

The best way to extract information about a company is by hiring a skilled person who knows how a company’s management works and use him/her to examine the crucial departments and aspects of a company. 

 

However, this is a highly impractical approach because most companies will not allow an outsider to gain information about their internal matters. Plus, there are only a few individuals who have the knowledge and the expertise to perform a job of this magnitude.

 

Business “grapevine” is a key factor that allows us to analyse the strengths and weaknesses of a company. In other words, all the entities that are related to a particular company, i.e., competitors, vendors, ex-employees, and customers can have significant sources of information about that company.

 

Information can also be gathered from Research Scientists in Universities, as well as executives of trade associations. Philip Fisher considered data and information from research scientists, customers, and vendors to be highly accurate.

 

Ex-employees, on the other hand, can have crucial sources of information. However, their information may contain a bias or a personal opinion, and hence, such information must be thoroughly checked and cross-verified.

 

Data gathered from different sources can point to different conclusions about the potential of a company. In such scenarios, we should contact the employees of that company and fill the gaps in our information before conducting further research. 

 

Investigating a company with all the above-mentioned sources can help us in making a well-informed investment decision.

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Units 3/18