Scuttlebutt investing, and buying and homework – two sayings coined by famous investors Philip Fisher and, of course, our own Jim Cramer. They stress the importance of knowing what you are investing in. There are many ways of going about doing the research/homework on the stocks in your portfolio. The scuttlebutt method was introduced in Fisher’s book “Common Stocks and Uncommon Profits.” The idea – which is perhaps the most direct, most obvious, yet most often overlooked – focuses on pulling information from more unorthodox sources. In addition to looking at a company’s investor relations website, financial statements, management commentary, and Wall Street research – which, by the way, are important and should be done – scuttlebutt is about “boots on the ground” – seeing the operations in real life, speaking with store employees, managers, customers, suppliers, competitors and so on. The concept is to see things for yourself and speak with those folks who are going to tell it to you straight, not speak the C-suite’s book. Jim often uses a version of scuttlebutt as part of his overall buy-and-homework rule, which states that investors must be actively learning about the stocks in the portfolio, not relying on the old buy-and-hold or set-it-and -forget. Jim will be the first to say that when you visit a store, what you see and learn is anecdotal, not empirical. To be sure, used solely, it has real drawbacks. However, used as a tool in your broader buy and homework toolbox it can be quite helpful. What does Jim look for when he’s out shopping? He focuses on things that are most likely chain-wide, meaning not unique to one location. And, he likes to go with his wife and his daughters who provide their own perspectives — for a business to thrive it must appeal to many different demographics. Back in the day, Jim said he warmed up to Walmart when the stock was trading in $40s because his daughter, who is in fashion, was struck by the highly stylized clothing there for prices that could be as low as one-tenth of what you might pay on Madison Ave. Not to mention, the fresh food aisles. The $5-price-point food is incredible. Jim said he got a sense it was a different Walmart. Jim often talks about being impressed by the merchandise at the off-price retailer and Club name TJX Companies. We’re talking about TJ Maxx, Marshalls, and HomeGoods. He said he’s always amazed by how fresh and current the offerings are – imagining what they might cost at Macy’s. Costco is all about the Beemers, according to Jim. He said he likes to count the BMWs and expensive cars in the parking lot, which reminds him that Costco has a diverse customer base. Jim is also impressed with the crowds willing to pay the membership fee and the always low prices that people can’t seem to get enough of. When he goes to McDonald’s, Jim said he looks for consistency no matter the franchise or company-owned location. And, he said he gets it. The same goes for Chipotle but not Starbucks. The Club owns Starbucks and expects Brian Niccol who came from Chipotle to work his magic on the struggling coffee giant now that he’s the CEO there. Prior to meeting Jim and joining his Investing Club team as an analyst, I worked at an expert network, Ridgetop Research – helping investors with similar forms of research. After that, I worked as a tech recruiter specializing in recruiting for DevOps roles, speaking with hiring managers and potential candidates. I didn’t last long at either of these jobs because I quickly realized I wanted to be the person conducting the research and making the investment decisions. Both, however, were incredible learning experiences and taught me the value of less traditional forms of research. You would be amazed at how much information you can gather simply by asking the right questions. At Ridgetop, my job was to put investors – often institutional investors – in touch with industry experts or contacts far enough removed from the target company that it wouldn’t violate any government rules on insider trading. For example, I couldn’t put an investor interested in Wendy’s in touch with the corporate management team – for starters, they could always get that information themselves but more importantly they would have to be very careful not ask the wrong questions or give the sense. they had inside information. So, who would they want to speak to? A franchise owner of five locations. After all, who is going to know more about what’s selling and what corporate is doing right or wrong? During my time as a tech recruiter, I quickly saw how in demand anyone with an understanding of Amazon Web Services or Microsoft’s Azure cloud units was (Red Hat Enterprise Linux, or RHEL, was also a big one back then). Little did I know, how valuable that exposure would be to really understanding and appreciating the investment opportunities that were Club names Amazon and Microsoft (and cloud computing in general). In fact, even then, my tech recruiting manager, maybe without knowing it, promoted scuttlebutt investing by telling us to keep in mind, that the companies doing all the hiring, are only doing so because business is good and they need more workers to support. the growth. He wanted us to look for other recruiting opportunities in the company but the concept of eyeing job boards for growth companies can be applied to investing as well. But you don’t need to hire an expert network to find an industry professional or be a tech recruiter to learn about the latest innovations. You can walk into the stores or leverage the technology we have all around us. LinkedIn is going to provide you with countless experts in any industry you can imagine. They may not all want to speak with you, and some may want payment, but there will also be those who are just so excited about someone taking an interest in their work that they’ll tell you everything you need to know. I saw this phenomenon again and again during the Covid pandemic. It wasn’t on LinkedIn though, it was on Clubhouse, the conference call like app that gave way to things like Twitter (now X) Spaces. Everyone was locked in their homes, but we would start up these chatrooms to talk about the markets – and in those rooms, we would scan for and bring people “up to the stage” who could speak to whatever company, industry, or topic we wanted to explore. From video game developers to automotive manufacturing insiders, to logistics experts, beverage industry experts and so on, they were all thrilled to talk and share information. That’s because we all had the same goal: to identify strong potential investment opportunities. What does scuttlebutt investing mean to me and the Club? It should be all of the above. Walk into the stores like Jim does; talk to those in the know. If you’re in college speak with your professors about the exciting things happening in their fields, hit up LinkedIn and blast out a million e-mails. If you’re a parent or grandparent speak to your kids about what they and their friends are interested in — they’ll drive the trends and the brand loyalty they build now will indicate where they spend their dollars later. There is a reason we love to cover the Piper Sandler Teen Survey whenever it comes ou. In the end, it’s a numbers game. Knock on a thousand doors because one of them might point you in the direction of your next big winning stock. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust is long.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Customers wait in line to check out at a Costco store on December 11, 2024 in Novato, California.
Justin Sullivan | Getty Images
Scuttlebutt investing, and buying and homework – two sayings coined by famous investors Philip Fisher and, of course, our own Jim Cramer. They stress the importance of knowing what you are investing in.
There are many ways of going about doing the research/homework on the stocks in your portfolio.
