January 26, 2025 • 1hr 12min

TIP694: The Scuttlebutt Edge: From Research to Returns w/ Kyle Grieve

We Study Billionaires - The Investor’s Podcast Network

In this episode, Kyle Grieve discusses the concept of scuttlebutt investing, made famous by Philip Fisher in his book Common Stocks and Uncommon Profits. The episode explores how investors can gain deeper understanding of businesses by gathering information from various parties connected to a company, beyond just public financial documents. Kyle shares both historical examples from legendary investors as well as his own experiences using scuttlebutt research.

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Key Takeaways

Scuttlebutt is the process of learning about a business by gathering information from people associated with the company - including employees, customers, suppliers, and industry specialists
While public information is valuable, scuttlebutt provides an informational edge that few investors are willing to work for
The four primary parties to talk to when doing scuttlebutt research are:
- Customers (current, former, potential)
- Employees (from frontline workers to C-suite)
- Suppliers (current, former, potential)
- Specialists (competitors, analysts, industry experts)
Effective scuttlebutt requires:
- Significant time investment
- Works best with concentrated portfolios
- Willingness to do work others won't
Building relationships and networks is crucial for gathering high-quality scuttlebutt information
Journaling and self-reflection help improve decision-making by identifying strengths, weaknesses and patterns

Introduction

In this episode, Kyle Grieve discusses the concept of scuttlebutt investing, made famous by Philip Fisher in his book Common Stocks and Uncommon Profits. The episode explores how investors can gain deeper understanding of businesses by gathering information from various parties connected to a company, beyond just public financial documents. Kyle shares both historical examples from legendary investors as well as his own experiences using scuttlebutt research.

Topics Discussed

Why Scuttlebutt is Essential (02:55)

Kyle explains that while public information like financial statements and earnings calls are valuable, they aren't enough to fully understand a business. Getting an edge in investing requires going beyond publicly available information.

Building conviction requires understanding a business from multiple angles
Everyone has access to public information, making it hard to gain an advantage
Scuttlebutt provides unique insights not found in financial statements
Information from people directly involved with a business can reveal important nuances

Understanding Bullish and Bearish Perspectives (03:32)

Scuttlebutt research helps investors understand both positive and negative perspectives on a business.

Speaking with various parties reveals different viewpoints and potential risks
Helps validate or challenge existing investment theses
Provides context for why people may be bullish or bearish
Allows investors to make more informed decisions

The Four Key Parties for Scuttlebutt Research (10:03)

Kyle outlines the four main groups investors should focus on when conducting scuttlebutt research:

1. Customers

End users of products/services
Decision makers who approve purchases
People who actually pay for products/services
Current, former and potential customers

2. Employees

Frontline workers and operational staff
Sales and marketing teams
C-suite executives
R&D personnel
Board members

3. Suppliers

Current suppliers
Former suppliers
Potential suppliers

4. Specialists

Competitors
Industry analysts
Shareholders
Industry experts

Learning from Employees (26:34)

Kyle discusses specific strategies for gathering information from employees at different levels:

Questions to ask employees:
- Are they busy/overworked or have excess capacity?
- How are they incentivized?
- What do they think of management?
- Are they hiring or firing?
Finding employees:
- LinkedIn searches
- Company websites
- Industry events

Warren Buffett's GEICO Example (36:49)

Kyle shares how Warren Buffett used scuttlebutt research early in his career to learn about GEICO:

Traveled to GEICO headquarters on a weekend
Got lucky when a janitor let him in
Spent 4 hours learning from Lorimer Davidson
"This one event changed his life" according to Buffett

Learning from Industry Specialists (49:50)

The episode covers how to effectively gather information from industry specialists:

Analysts can provide unique perspectives and connections
Current shareholders often have valuable insights
Industry experts can explain technical details
Important to recognize potential biases

Li Lu's Timberland Investment (54:51)

Kyle discusses Li Lu's thorough scuttlebutt process when researching Timberland:

Spent weeks in the community where management lived
Spoke with friends, neighbors, church members
Researched family dynamics and history
Built relationship with CEO's son through board membership

The Importance of Networking (55:01)

Building relationships is crucial for effective scuttlebutt research:

Develop network of industry contacts
Connect with management at events
Utilize social media platforms
Maintain relationships over time

Self-Reflection and Journaling Framework (58:11)

Kyle shares his framework for learning from mistakes through journaling:

Four-step process:
- Identify significant losses
- Look for similar thought patterns
- Find common reasons for mistakes
- Develop rules to avoid similar mistakes
Use tools like Journalytic to track decisions
Regular review of past decisions
Focus on improving circle of competence

Conclusion

The episode emphasizes that while scuttlebutt research requires significant time and effort, it provides valuable insights that can't be obtained from public information alone. By systematically gathering information from customers, employees, suppliers, and specialists - while also maintaining a practice of self-reflection and journaling - investors can build stronger conviction in their investments and improve their decision-making over time.

The key to successful scuttlebutt is building relationships and being willing to do the work that others won't. While not every investor can replicate the extensive networks of Warren Buffett or the deep dive approach of Li Lu, everyone can incorporate some level of scuttlebutt research into their investment process to gain an informational edge.