This is an excerpt from my new book, The 4 Minute Millionaire*. If you enjoy it, you can buy a copy on Amazon for $4. Disclaimer: This is not financial advice.
One of the most surprising — and sobering — realizations in writing this book was that there are very few great finance books to begin with — and most of the best ones are 20, 30, 50 years old! Three reasons come to mind:
- Most authors are lazy and in for a quick buck. They repeat what’s been said a million times and hope they get away with a good story that’ll go well with existing advice.
- Most investors will never beat the index, so most authors don’t bother trying to help them do so. They just say, “Buy index funds!” and call it a day. This isn’t necessarily wrong, but it does seem…sad.
- Modern books focus on modern trends rather than timeless principles. An ebook on how to benefit from the 2017 ICO (Initial Coin Offering) craze in crypto only had value in, well, 2017. Then, the bubble burst and said book became useless.
Meanwhile, books like Philip Fisher’s Common Stocks and Uncommon Profits, published in 1958, largely rely on principles. While not all principles survive for decades, the ones Fisher selected still apply today. Fisher, a man who practiced Warren Buffett-style investing before Buffett was even born, said some of his best investments came from a simple yet tried-and-true technique: scuttlebutting.
If you don’t happen to be born in 1907, like Fisher, you probably have no idea what that means. The term “scuttlebutt” is mariner slang. A scuttlebutt is a big, wooden barrel with a small hole in it — a “butt” that has been “scuttled.” On a ship, the scuttlebutt was the watering hole, both literally and figuratively. Sailors would come, grab some water, and chat about the latest gossip. Like Fisher being a value investor before Buffett, the scuttlebutt was the proverbial water cooler before said cooler became proverbial.
In investing, scuttlebutting simply means gathering information about a potential investment from various, hopefully chatty sources. Fisher suggests the following six:
- Competitors. No one wants to talk about their own strengths and weaknesses, but their competitors’ flaws and features? Game on!
- Customers. Ideally, you’re one too. If not, go talk to some! Visit stores, tour a plant, and read reviews online.
- Suppliers. How does the company treat the people it gets its resources from? Are they cheap? Fair? Find out!
- Researchers. Are there any independent studies published about the company’s product, HR practices, or impact on the market? Read them.
- Industry-body executives. Trade associations, the chamber of commerce, regulators — these people get rare glimpses into a company’s inner workings from a unique angle. Ask them to tell you what they’ve seen.
- Former employees. Depending on why they are “former” employees, you might want to take their opinions with a grain of salt. Still, previous insiders undoubtedly hold vast, valuable amounts of information about the company they used to work for. Try to access some of that data.
Let’s say you’re interested in gaming stocks. First, you buy and play a few games from various developers. You visit your local GameStop a few times and chat to customers and clerks. “Which developer do you like best? Why?”
Next, you read interviews with famous franchise owners who partnered with game developers to turn their stories into video games. What did J. K. Rowling think about the video game adaptations of Harry Potter, for example?
Then, you get an overview of the latest science. Are video games good for us? Bad for us? How strong is their effect? Is the public sentiment positive or negative? You also watch a documentary about the world championship of a famous online game, like League of Legends.
Finally, you check your LinkedIn. Who in your network works in gaming? Does someone even work for one of the companies you’re interested in? You message 5–10 people. You add new ones as connections. One by one, you manage to chat for a few minutes with employees from Nintendo, Electronic Arts, Activision Blizzard, Sony, Disney, and Microsoft.
Imagine how much better your understanding of the gaming stocks landscape would be after you took these simple, albeit time-consuming steps. Sure, it would probably take you several hours spent over a few weeks, but you’d emerge with a much clearer picture of where your money should go.
At the 2018 Berkshire Hathaway annual shareholder meeting, 60 years after Fisher published his book, Warren Buffett praised his method: “It’s a very, very good book. You can learn a lot, you know, just by going out and using some shoe leather.” Who would have guessed? Buffett actually studied Fisher, and, even decades later, the student still honors the master.
Go out. Talk to people. No matter how much the markets change, scuttlebutting will always be a good way to find great investment opportunities.
Action Item: Scuttlebutt one piece of intel on a company you like
What’s a stock you feel drawn to but can’t properly justify why? Use the scuttlebutt method to get some data.
In a video summarizing Fisher’s book, Erik Abrahamsson recommends using LinkedIn, direct contact data, for example from the company website, and in-person visits to get access to the six relevant scuttlebutting parties in modern times.
Can you acquire one piece of data from each of the six groups? What could those data points be? An article? An interview? A research paper? Get your gears turning, and you’ll start developing a timeless filter for great investments.
This is chapter 42 from my new book, The 4 Minute Millionaire: 44 Lessons to Rethink Money, Invest Wisely, and Grow Wealthy in 4 Minutes a Day*. Sourced from the world’s leading money experts, most successful investors, and the author’s own journey to financial independence, each lesson comes with a short, realistic action item you can complete quickly without feeling overwhelmed.Whether you want to build a saving habit, pay off debt, or invest like the pros – if you're ready to look at money from a new perspective and build long-term wealth, this book is for you. Get it on Amazon*.
*Affiliate links
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This post was previously published on Four Minute Books.
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