Are you familiar with the cooler talk at work or the gym?
Do you know someone who always knows the scuttlebutt?
Yet, you find yourself wondering –What does it mean?
The word scuttlebutt was first used circa 1805. A slang, sailors used in the 18th-century. In the early 1800s, a wooden barrel containing the ship’s daily water supply was called scuttlebutt. Derived from the verb scuttle, which means to cut a hole through, and the noun butt, which means cask or barrel.
On ships, the scuttlebutt was the place sailors gathered and exchanged gossip. Over time, the term scuttlebutt was used to describe gossip, rumors, and the latest chatter.
For investors, the scuttlebutt is a term Philip Fisher popularized in his bestseller Common Stocks and Uncommon Profits, published in 1958. Fischer presented scuttlebutt as an activity for investors to gather information from multiple sources about a particular investment.
Some of the sources for scuttlebutt include
Customers are the first level as they would be using a company’s products or availing services. Their insights would help you understand how consumers perceive a company. Such perceptions would impact that company’s market share. Customers would also be vocal about their experience dealing with the company. These opinions would give you a better idea of the company’s brand image.
If you hear a competitor praising a company, it is means you should begin evaluating that company. Often, competitors have extensive knowledge about a company. They would have conducted substantial research to find a company’s strengths, weaknesses, opportunities, and threats.
Ex-employees can be your treasure trove of cultural insights about a company. We live in a world where culture plays a vital role in determining whether high-performing employees stay back or explore greener pastures. A loyal employee base will help you understand the company’s culture better.
Distributors can help you understand the demand for a company’s products. They can share information about the credit terms the company provides. For instance, if a company takes advance payments from its distributors and the latter are willing to pay, then that is a good sign.
The quality of suppliers will largely influence the quality of products the company offers. If you can also get information about future orders, it will help you understand if the company plans to scale up or is getting a favorable response from the market.
However, while researching, it is vital to verify the information you receive and also account for bias. As a retail investor, it may be difficult for you to acquire value from scuttlebutt right away. But it is a long process, and over time you would be able to develop a network to practice scuttlebutt efficiently.
Remember, ask the right questions without alienating the respondents, and we are sure you will succeed. It may be easier to form a group with like-minded investors and practice this activity together.
Are you ready to practice scuttlebutt? Write to us at [email protected] and tell us.
In the meantime, subscribe to our 5 in 5 Wealth Creation Strategy and begin investing today.