Strategies for Silently Scuttlebutting
Most of the stuff you will read on the Internet is useless. It’s not enough to do a simple Google search for a business and see what comes up. There are tons of SEO firms out there trying to keep up with the system and tons of faux content creators. How could anyone forget the quantum leap in innovative technology achieved by Demand Media? Oh, wait…
That being said, I like to do some research beyond SEC filings on companies, especially public facing ones. Conference calls and presentations are all right, but everyone knows that a business will think highly of itself and believe they have so many opportunities. The Internet – or a library, if those still exist – is a great repository of experiences and information. You don’t need to call up local businesses or visit factory sites to learn a lot about a company or industry if you can find the right information on the Internet.
Scuttlebutt is what Phil Fisher called his method for gathering a lot of qualitative information about companies. How do customers see the business? How do competitors see the business? How important is the industry to other businesses? What type of pricing power do they have as demonstrated by how their products are used? Is the CEO a hard worker? All those kinds of things you want to know about a business, but don’t exactly get presented in a perfect package that directly answers the question. You aren’t going to find reviews by water utility workers letting the world know what they think about a Xylem pump.
Reading periodicals like American Banker or Oil & Gas Journal would be nice if they didn’t cost so much. For example, I wrote about HomeFed (HOFD) a while back. They are a land developer in Southern California. There is a very media-savvy realtor in the form of Jim the Realtor who operates specifically in North San Diego County. He uses his site, bubbleinfo, to discuss a lot of local and national real estate issues. I know you’re not supposed to ask a barber if you need a haircut, but there would be no other place to go if you wanted some informed conversation on hair dye or other care products. The same goes with someone looking for a view on the housing market.
There was a Calculated Risk link to a post where Jim the Realtor claims that the market is really starting to heat up for those with the resources since rates are so low. Jim posted on his site about the negative reception it received when linked to on Business Insiders (side note: It is beyond my comprehension why commenters on articles on news aggregators with 1000+ comments will somehow reach the penultimate conclusion in a labor vs. capital debate or something of that nature). I think it's pretty clear he is a realtor and his online presence helps him sell houses, but that doesn't mean his views are automatically void of insight.
Jim’s Youtube channel is actually a treasure trove of real estate knowledge. I am but a pup, but would anyone else show you how crappy the location and construction of a house was like he does in this video? Or this video on red flags of drywall repairs.
My point is that he isn’t just shoveling nonsense on the web to sell homes. He is a great resource to gain additional perspective from individuals participating in San Diego real estate. The tips about cracks in the concrete slab or how huge power lines will make noise when it's humid are not things I learned in high school. I think after watching a couple videos, you can get the idea he is competent. There's insight in the foreclosure, bank owned, new construction, and regular real estate market. It’s an informed perspective on real estate and as long as you understand who is doing the informing, it isn’t a problem. I do worry about him driving and videotaping at the same time though.
Another bountiful source of business intelligence is The Consumerist. I can’t speak more highly of Consumer Reports as an institution, so I will refer you to thesearticles. Basically, Consumer Reports is a nonprofit organization wholeheartedly dedicated to blunting the greed of corporations for the benefit of consumers. They praise those that provide quality customer service and heap opprobrium on those that torture their customers. They have dedicated tons of coverage to the horror behind all those gold4cash commercials on TV. They’re just legit from a consumer’s perspective.
That they essentially curate the opinions of consumers and post them on their website is very useful for anyone looking to properly deal with cell providers, airlines or cable companies. There are posts from the mailbag about very positive or negative customer experiences. Is there a chance some companies concoct elaborate schemes to covertly praise themselves? Sure. But the complaints and praise are fairly well documented. I'm comfortable taking The Consumerist at close to face value over angry Amazon reviews from even more anonymous parties. This is a great way to find out how a business treats their customers.
Another source of scuttlebutt are the Sequoia Fund annual meeting transcripts (05,06, 07, 08, 09, 10, 11). These guys are savvy investors who dig really deep into companies. Knowing this, their opinions are worth something. Most websites of asset management companies talk about how they speak with management and all that jazz, but it is just a sales pitch to make people feel comfortable about parting with their savings. These guys really do speak with management, competition, customers, suppliers, employees and everyone in between. All of the transcripts contain distilled wisdom about various businesses and industries. Is it a reusable tool? No. But the transcripts contain nuggets of insight on plenty of businesses that might interest a value investor.
And for better or worse, consulting businesses capture the zeitgeist of the corporate world. Consulting is paying somebody else to abscond responsibility for your own incompetence. Business is and always will be brisk to say the least for such a service. If you want to know what schemes will be foisted on businesses you might own, look no further than the McKinsey Quarterly or Strategy + Business, a Booz & Co production. The people behind these are smart people, but they clearly have an interest in pitching their product. You can still gain insight into bank IT systems orweb based mobile strategies, which will probably have a broad impact in the future. These are ideas and strategies that get sold to corporate America. Through self-fulfilling prophecies or their own innate wisdom, these guys have an impact and it is worth seeing what they have to say about certain industries.
So there’s plenty of well-articulated expertise on various subjects out there on the web. You will never find an unbiased opinion out there. I suppose the trick is to just read a lot, and you will have your bases covered when the need arises for insight on a specific industry or business. Above are just a few sources that I’ve found useful from time to time.
What other resources have you found useful for scuttlebutt on various industries or businesses?