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. Most people, particularly if they feel sure there is no danger of their being quoted, like to talk rather freely about their competitors. Phillip Fisher writes about the business grapevine being a wonderful thing, he says: “It is amazing what an accurate picture of the relative points of strength and weakness of each company in an industry can be obtained from a representative cross-section of the opinions of those who in one way or another are concerned with any particular company. Asking suppliers, vendors, customers, competition, trade association executives, research scientist from universities or in government and previous employees may all be intangible sources of qualitative information. The scuttlebutt technique is inquiring and asking questions to various people with mutual interest or are involved with a certain company or industry. Investigating a company with all the above-mentioned sources can help us in making a well-informed investment decision.Warren Buffett and Peter Lynch in their capital allocation process and had first coined the “scuttlebutt” technique when he wrote Common Stocks and Uncommon Profits. In such scenarios, we should contact the employees of that company and fill the gaps in our information before conducting further research. However, their information may contain a bias or a personal opinion, and hence, such information must be thoroughly checked and cross-verified.ĭata gathered from different sources can point to different conclusions about the potential of a company. Philip Fisher considered data and information from research scientists, customers, and vendors to be highly accurate.Įx-employees, on the other hand, can have crucial sources of information. Information can also be gathered from Research Scientists in Universities, as well as executives of trade associations. 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. Plus, there are only a few individuals who have the knowledge and the expertise to perform a job of this magnitude.īusiness “grapevine” is a key factor that allows us to analyse the strengths and weaknesses 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. 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. 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. 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. In this chapter, Philip Fisher introduces us to the concept of ‘ Scuttlebutt’.
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