INVESTOR LETTER #125
Scuttlebutt Method
Financial statements tell you what happened inside a company. The Scuttlebutt Method helps you understand what is happening outside the company. Popularized by legendary investor Philip Fisher, this approach involves talking to customers, suppliers, competitors, employees, and industry experts to gain insights that numbers alone can never reveal. Sometimes, the best information isn't found in an annual report—it's found in the real world.
INVESTOR NOTE
A business owner thinks in decades. A speculator thinks in minutes.
Looking Beyond the Annual Report
Imagine you're thinking about buying a restaurant. You wouldn't rely only on its financial statements. You'd probably eat there, observe the crowd, talk to customers, and maybe even ask nearby shop owners what they think. That's the essence of the Scuttlebutt Method.
What Does 'Scuttlebutt' Mean?
Scuttlebutt simply means gathering information from people who interact with the business every day. Instead of relying only on company presentations, you learn from those who experience the business firsthand.
The Business Leaves Clues Everywhere
Every company leaves clues about its quality. Customers reveal satisfaction, suppliers reveal relationships, employees reveal culture, competitors reveal strengths, and distributors reveal demand. Together, these pieces create a clearer picture of the business.
Customers Tell You What Numbers Can't
Financial statements can show rising sales, but they can't explain why customers keep coming back—or why they're leaving. Talking to users often reveals the real strength of a company's products and services.
Competitors Often Give Honest Opinions
Companies usually praise themselves. Competitors don't. Listening to what rivals respect or fear about a business can reveal genuine competitive advantages.
Employees See the Inside Story
Current and former employees often provide valuable insights into company culture, leadership quality, innovation, and employee satisfaction. While every opinion should be treated carefully, recurring themes are worth noticing.
Suppliers and Distributors Notice Trends Early
Businesses that work closely with a company often notice changes before investors do. They may observe increasing demand, slowing orders, improving relationships, or operational challenges long before these appear in quarterly results.
Don't Believe Every Opinion
The Scuttlebutt Method isn't about collecting rumors. Every person has biases and limited knowledge. The goal is to gather information from multiple independent sources and look for patterns rather than relying on a single opinion.
Use It to Verify Your Research
The best use of Scuttlebutt isn't replacing financial analysis—it's confirming it. If the annual report says customers love the product, the real world should tell the same story.
Technology Makes It Easier Than Ever
Today, investors can learn from product reviews, earnings call transcripts, online communities, app ratings, industry forums, job websites, social media, and interviews. Valuable insights are more accessible than ever before.
Great Investors Combine Numbers With Reality
Philip Fisher believed that outstanding investments come from deeply understanding a business—not just its financial statements. The Scuttlebutt Method helps you bridge the gap between reported numbers and real-world experience, giving you a deeper understanding than financial analysis alone ever could.
INVESTOR PRINCIPLE