students polled thought that they were above-average drivers, yet the math would tell you that it’s impossible for more than 50% of people to be above average at anything. There was a study done by Ola Svenson which has proven to be pretty comical over 93% of U.S. People usually don’t think poorly of themselves and their abilities, and psychological research has shown that we routinely evaluate ourselves more highly than our actual skills suggest. Those competitor reports are essential because even in a document as official as an annual report, it’s easy for biases to slip in and color the information. In fact, even Warren Buffett says that he doesn’t spend that much time talking to management but rather spends most of his days reading through the annual reports from companies and the annual reports of their competitors. Reading an annual report is probably your most efficient way to get the scoop about a company directly from management. Starting with competitors is an obvious part of analyzing a business, but you might be surprised at how easy it is to overlook.Īs we try to apply scuttlebutt investing to our research process as average investors, it should go without saying that we should try to read annual reports, and lots of them. I guess there’s nothing new under the sun. They comprise Porter’s “five forces” we can apply this to the scuttlebutt investing idea because it was also defined by Fisher as our “representative cross-section”. Most businesses have the following:Ī company is intimately involved with each of these major players, as they all can directly affect the profitability and success of a business. Porter also referred to it as the “five forces” let’s summarize the idea.Īlmost every business is part of a larger ecosystem. This idea of a representative cross-section of a company is also called “the value chain” by the very well-respected business school professor Michael Porter, and it is key to truly understanding a business. The idea of collecting multiple vantage points through the representative cross-section of a company is one of the simplest yet most powerful ideas for effective research for investing. 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. The business “grapevine” is a remarkable thing. In particular, I want to highlight the following section of the chapter: In essence, Fisher explains the process of scuttlebutt as talking to as many people as you can about a company that you are interested in a potential investment for. In the book, Fisher spends 3 short pages outlining “What ‘Scuttlebutt’ Can Do”. How Only Scuttlebutt Paints the True Picture of a Business Let’s get started on this simple but powerful method for finding great stock market opportunities today and over the rest of your life.
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