Scuttlebutt and Sleuthing: Unveiling the Secrets of Successful Investors w/ Kyle Grieve (TIP694)

A business with sole-source supplier dependency is highly risky; if that supplier ceases operations or relationships break down, the business becomes essentially non-functional, making supplier diversification a critical resilience factor.

“how critical A supplier is to your business if your business can't run without one supplier that information is very very key if something were to happen to that supplier then your business would be essentially done if the supplier could no longer Supply the business this is why having a business with multiple suppliers is good”

Philip Fisher emphasized looking at research and development departments and salespeople specifically when evaluating employees; he wanted to know if the business had the right people in place to continue growing, viewing R&D and sales as critical growth engines.

“Phil liked to look at people in things like the research and development departments as well as salespeople he wanted to know specifically to do with salespeople if the business had the right people inside of it to continue growing”

If multiple colleagues of an employee have been fired and not replaced, that's a strong signal that the company is unlikely to increase sales anytime soon because they lack the personnel to execute growth.

“if you're talking to people about their job and you find out that maybe a bunch of their colleagues got fired and aren't being replaced by new people I mean that's alone is a really good signal that maybe uh the business is very unlikely to increase its sales anytime soon”

ASML is an exceptional investment compounding at 26% per annum over the last decade because it is the sole supplier of critical semiconductor manufacturing equipment that many semiconductor businesses depend on for their operations.

“there might be one supplier who's key to a whole bunch of different companies that require it for their business to run asml I think is a really good example here I'm by no means a semiconductor specialist but I know that that business supplies many semiconductor businesses the Machinery that's needed to manufacture their widgets and for that reason asml has made an exceptional investment compounding at 26% perom over the last decade”

Warren Buffett used scuttlebutt during the American Express salad oil scandal by personally visiting merchants, hanging around cash registers, and asking waiters if customers were still using their American Express cards and if behavior had changed, discovering that customer behavior was unaffected and therefore the scandal's impact on business fundamentals was minimal.

“Warren you know he could have just read what was written in the paper read what all other investors were reading and concluded the same thing but he actually did his work um outside of it he did his own scuttlebutt and realized that the uh Scandal that was going on didn't actually affect American Express's business... he just simply went to places that accepted American Express and he hung around the cash register he did things like ask waiters if people were still using the American Express card”

Scuttlebutt is not insider trading—it is legal information gathering from publicly accessible people and observing public events, unlike illegal material nonpublic information from corporate insiders.

“I'm not describing anything illegal like Insider training that's not what Scuttle butter sleuthing is”

In the case of Alpaca Systems (a fictitious company selling CRM software to retail stock brokers), the business initially believed it was selling productivity tools to brokers and control to broker managers, but it unknowingly sold enslavement: the software prevented brokers from maintaining client relationships, making it impossible for them to leave for competitors—creating long-term customer resentment that destroyed value.

“adner wrote while apaka thought it was only selling higher productivity to its product users it was also unknowingly helping its users employers enslave them... even if the Brokers were using the Paca systems they actually weren't using it to its full capabilities they were doing things like keeping paper records and keeping copies of their customers info at home that way that gave them more control over their clients if they wanted to eventually leave their former company”

In The Sleuth Investor, Abner Mandelman describes Michelle, a PhD in mathematical finance, who used observation of physical behaviors (banker nervousness/confidence) to infer that an ad agency had successfully negotiated debt restructuring, allowing her to buy the stock before the public announcement and make $90,000 in two days when the news was announced.

“so let's get into some of the details of how Michelle sleuthed and made this windfall so across from Michelle's desk was the office of an investment bank... she was just a keen Observer of people and most of the time the bankers were very cool calm and collected while the business's Executives were nervous walking in but on one occasion she observed the complete opposite the executives looked calm entering the office while the bankers actually looked nervous after the meeting had ended she observed the nature of the bankers and the executives and once again the bankers looked ejected while the executives were high-fiving each other as they left the building”

Michelle, a PhD in mathematical finance, made $990,000 in a very quick period of time using sleuthing techniques, including observing the body language of executives and bankers entering meetings, which revealed whether debt restructuring would be favorable or unfavorable for the company.

“Michelle had a PhD in mathematical finance and she was hired by a Canadian subsidiary of this US Bank that had started an index fund she told ad that she'd made about $90,000 in the market in a very very quick period of time using some of the interesting sleuthing techniques that she was lucky to be exposed to”

Michelle observed bankers looking nervous entering a meeting with executives but calm and ejected leaving, while executives looked calm entering and were high-fiving after leaving, which signaled the executives had negotiated a favorable debt restructuring from the bankers.

“she was just a keen Observer of people and most of the time the bankers were very cool calm and collected while the business's Executives were nervous walking in but on one occasion she observed the complete opposite the executives looked calm entering the office while the bankers actually looked nervous after the meeting had ended she observed the nature of the bankers and the executives and once again the bankers looked ejected while the executives were high-fiving each other as they left the building”

There are three primary customer categories when doing scuttlebutt: end users (people who use the product but don't necessarily buy it), decision makers (people who decide whether to buy but might not send checks or use the product), and check senders (people who financially commit to the purchase but might not use or decide).

“Abner breaks down customers into three primary categories so the first are the end users... the second kind of customer which are the decision makers these are the people that might not actually physically write and send the checks but they can approve if a specific product is purchased... and then the third and final type of customer are just the people that sign and send the checks”

Information from direct customer conversations is not available through public sources; while it would be simple today to reach out to family, friends, or colleagues with a product to ask if they use it, most investors never do this, giving careful practitioners a significant information advantage.

“scuttlebut he did could not be gleaned from public information... this information is read available to anyone who's willing to go and look for it but very few people do this kind of work it's much easier to scan for public information in a business's Financial document”

Specialists without financial interests (like industry consultants without stock positions) are preferable sources because they lack financial distortion; identify these specialists first as they provide less-biased perspectives than investors.

“if you can find Specialists that maybe have no Vestor interest in the business that can be helpful because they don't have a financial bias and hopefully that means that maybe some of the information you might get might be not distorted”

When investigating suppliers, ask: how big a customer is the company for the supplier, is the supplier the only source of a material, how easy would it be to find alternative suppliers, what are payment terms, and does the supplier view the company favorably

“if you happen to find current suppliers there's a few things that you're going to want to find out and these are things like you know how big of a customer is the company for the supplier... how easy it would be for aany to find an alternative supplier... you should try to find out the payment terms between the supplier and the company and you should just get an idea of what the supplier thinks of the company”

Customer types break into three categories: end users (who actually use the product), decision makers (who approve purchases), and check signers (who pay), and understanding whether these are the same person or different people reveals critical leverage dynamics.

“the first are the end users let's imagine that we're looking at a software company this would be people who use the actual software maybe as part of their daily life or as part of their job so these are the people who might actually use the software but they might not actually be in charge of actually buying the software...the second kind of customer which are the decision makers these are the people that might not actually physically write and send the checks but they can approve if a specific product is purchased...and then the third and final type of customer are just the people that sign and send the checks”

Takeaway 5: Use a four-step framework to learn from mistakes: (1) identify where your biggest losses occurred or where thesis failed, (2) identify similar thought patterns, (3) find similarities in why mistakes happened, and (4) avoid these patterns going forward by moving them to the 'too hard' pile.

“I have kind of this four-step process and I'll expand the example that I just used a few minutes ago here so the first one is looking where your most significant losses are...the second part here is identify similar thought patterns...the third Point here is to try to find similarities in why I made the mistake...leads to the fourth Point here which is avoid these patterns as part of your analysis”

Scuttlebutt and circle of competence are closely related, and journaling and self-reflection—recording thoughts and analyzing past mistakes—are integral to improving as an investor, though Buffett and Munger have underemphasized this in public discussion.

“I think scuttlebutt and circle of competence are very closely related Warren and Charlie have discussed at length how to understand the boundaries of your circle of competence but there is an area I don't believe they've mentioned enough that I think has been integral to their Improvement but also my own Improvement as an investor as well as other investors that we've had on the show such as John Huber and this is how to utilize journaling and self-reflection to become a better investor”

Scuttlebutt takes a lot of time to execute properly; one business can easily require 40-100 hours of research, which means it works best with concentrated portfolios where you can dedicate meaningful research effort per holding, rather than spreading effort across many 1% positions.

“it takes a lot of time now you know I can go through a company's financial statements or official documents it's still going to take a lot of time right but once you start understanding all the different layers of scuttlebut that you can do you can spend a lot of time on just one simple business... if one business can take you know 40 80 100 hours to sleuth or to to to understand better that's going to be a business that probably you want to put a lot of money behind and it's not going to be something where you're going to want just put 1% in”

Shareholders are underutilized scuttlebutt sources because they have often conducted extensive scuttlebutt themselves and can guide new investors toward productive research directions or share specific hypotheses about what drives a company, significantly accelerating research efficiency.

“similar to analysts are shareholders who are a very good source of information some of them might have already done a ton of scuttlebutt themselves and can help share information with you or guide you in the right direction I can't tell you how vital this can be especially when you're first learning about a new business that maybe you haven't spent too much time on it can be hard to understand what makes a company fire on all cylinders when you first start researching it however current shareholders will have their hypothesis that they will share with you so you can just go out and see if their hypothesis is correct or not”

In a real retail case study of a business the speaker calls 'ABC,' when they asked a lower-level employee how work was during the holiday season, the employee reported 'work was swamped, items were flying off the shelves and we couldn't replace them fast enough' and that management showed a video thanking employees for record sales in North America and e-commerce, which provided information more valuable than financial analysis alone and influenced the decision to hold shares longer.

“let's say I ask a lower level employee that same question and the response is something along the lines of work was swamped items were flying off the shelves and we couldn't replace them fast enough oh also we were also shown a video by management that thanked the employees for record sales in North America and e-commerce now once you hear this news you probably won't be in such a rush to sell your shares as it means the business is continuing to improve this is a real case study for me and after hearing it I knew I'd hold my shares longer and I still do”

Avore Health microstock crushed from 7 cents to 24 cents in less than a year, then announced a strategic shift away from pharma operations in Canada toward international operations, causing the stock to drop back to 4 cents; someone with customer/supplier relationships could have learned about severed customer relationships before the market recognized it and exited before the massive drawdown.

“there's a business that I Loosely followed it's a micro cap called uh avore Health this business just crushed it going from about 7 cents to 24 cents in less than a year then they announced a strategic shift away from phies in Canada and that they would actually be going towards going International and now the price has dropped back down to 4 Cent so you know hypothetically speaking if someone could chat with the people who were sending checks or who were the actual customers of avore from thees that were were leaving they would have learned that that relationship had been severed or funding had been cut and they probably could have gotten out before this massive rundown”

If employees are being hired, they're likely being brought in from competitors or other specific sources; if they're leaving, they're often going to specific competitors—tracking these flows reveals competitive dynamics and which firms are winning talent wars.

“if employees are being brought into the business who are they being brought in from are they is your company sealing employees from maybe competitors is it a specific competitor and then you know on the other hand if employees are exiting you should try and find out where they're getting their job are they going to a specific competitor”

When doing specialist scuttlebutt, the most important people to interview are competitors of the target company; if five competing companies all identify the target as the competitor they fear most, that's strong evidence the target is the industry leader.

“the most important people to talk to in this segment I think are the business's competitors let's say you speak with five businesses that are competing with the business that you're researching and they all identify the business that you're looking at as the business that they fear the most in that case that's a very very good indicator that you've identified the leader in that industry”

Fourth key takeaway: when talking with specialists, watch out for bias; bulls will be cheerful about stocks they own, but shorts can be more helpful because they'll explain why the stock will decline. You must evaluate whether short evidence is more compelling than bull evidence and adjust your position accordingly.

“I love talking with Specialists I think it's a great source but one thing that you really have to watch out for is bias you know if you speak to someone who owns a stock you're likely to hear very cheery news from other Bulls about that company... talking to someone who's short can actually be more helpful you'll learn why they think the business will likely decrease in value or price”

The speaker conducted scuttlebutt on a trust manufacturer undergoing automation; they found that while the company could double capacity with minimal incremental expense, a critical unknown remained: whether the company had salespeople capable of selling that additional capacity, so they asked a salesperson directly about sales processes, team additions, and customer impact of automation.

“there's this trust manufacturer that I own and it's in the beginning stages of utilizing automation to increase its output by nearly doubling it in a very short period of time... one of the main problems this business will eventually face is that they will be able to double their capacity and now on the face of things this is obviously great a company that can double capacity with minimal incremental expens is a very good thing still there's another potential area that must be addressed for this whole process to be successful and that is that they have to to have the salespeople to go out and sell that additional capacity to the market”

Speaker analyzed previous losses in value investing and found a pattern: losses occurred when the primary investment thesis was based on sum-of-the-parts calculations (buying cheap assets). Having recognized this weakness, he now avoids this pattern by focusing on earnings power instead, using sum-of-the-parts only as downside protection.

“I've looked at a few of my previous Investments and determine that I have either made very little or lost money whenever I attempt to do this exact same thing so from this I can gain a new insight into where my circle of competence is strong or weak... many value investors like Investments whose value comes from a business's assets for instance you might buy a company where the assets of a business are worth two billion while the company's only trading for a billion or $500 million”

In 'The Sleuth Investor,' Abner Mandelman can learn about supply chain through understanding volumes and prices suppliers offer, and by identifying potential suppliers who could boost company value if relationships improved

“in the slth investor Abner points out that you can go to the supply chain to understand the volumes and the prices of what's being supplied and what kind of volume A supplier is offering a business another strategy Abner likes is getting to understand potential suppliers if a company could be boosted by having close relationships with better suppliers they could see a significant boost in their value”

Bankers (investment banks extending credit to companies) can be considered suppliers in the scuttlebutt framework; understanding banking relationships and restructuring outcomes provides high-quality investment intelligence

“as the story of illustrates a business is supplier doesn't have to be the supplier in the traditional sense it could be Bankers as well it's up to you to kind of think outside the box and use your opportunity set and skill set to find ways of observing things that are happening around you”

Having beers or social time with employees is a valuable scuttlebutt technique because in informal settings employees are more likely to open up and provide honest feedback, whereas in formal office settings they tend to be on their best behavior to protect their jobs.

“Admar say one of his favorite tools for learning information is just having beers with employees now this is a method that I haven't had the time to try out yet but I can see how valuable it would be if you can speak with employees when they're in more of a casual setting you're likely to get better information than if you maybe just go to the IR office of a business that's in your um local neighborhood and they're just showing you around the workplace in that scenario you know you might just get people that are going to be on their best behavior even if maybe they don't necessarily think highly of the business that you're visiting just to you know keep their job and make it uh make the Optics look good but in an informal setting you may get people to open up more”

Board members can provide valuable information about whether they are genuinely providing value to the company or just rubber-stamping the CEO's decisions, though they must be cautious about what they disclose to avoid insider information violations.

“a few things that you can learn from them would be you know what value are they bringing to the company are they actually doing something to provide value to to that board or are they just there to um pump up the CEO and agree with everything that he says”

While Warren Buffett famously doesn't rely on analyst reports for decision-making, thoughtful analysts can be valuable scuttlebutt sources because they may have insights investors lack, can recommend people worth speaking with, or offer perspectives on specialized aspects of a business, but investors should never rent conviction from analysts.

“Buffett is famously said that he doesn't rely on other analysts to do his decision- making for him and I completely agree with that but if you find other thoughtful analysts they might know things you don't they can help guide or connect you with maybe people worth learning more from or they can just offer their opinion which might be highly valuable on specific matters in the business that maybe you're just a little unfamiliar with”

Questions to ask salespeople about a business include how busy they are, whether they're happy or unhappy with their job, how they're incentivized, what they think of management, and whether the company is hiring or firing, all of which reveal operational momentum and employee morale.

“things that I like to find out from sales people are you know just ask them how things are going are they enjoying their job are they disliking their job are they busy you know do they have a lot of time on their hands or are they swamped obviously you know that can help you understand more if if if someone goes from being not so busy to super busy well maybe there's something interesting going on in that business you might find out how they're incentivized incentivization systems are easy to find on public documentations for management but not necessarily for employees”

The speaker made a prediction in September 2024 that Dino psk share price would not move due to lack of new store openings, but by end of 2024 (3 months later) it had appreciated 33%, revealing he is bad at predictions and should probably not make predictions or heavily reduce certainty in them.

“I made a prediction back in September of 2024 and that was that the share price of Dino psk was unlikely to move due to a lack of new store openings so I was alerted by the app at the end of uh 2024 about 3 months later and when I checked the share price I realized it had already appreciated by about 33% so we all had a good laugh but you know really this tells me a few things a I stink at making predictions”

The speaker's analysis of past failures reveals a pattern: investments in businesses valued below sum-of-the-parts have consistently underperformed or lost money (3 out of 4 such investments lost significant capital), indicating this is an area outside his circle of competence.

“I've looked at a few of my previous Investments and determine that I have either made very little or lost money whenever I attempt to do this exact same thing so from this I can gain a new insight into where my circle of competence is strong or weak and since my track record in this area is not good I can assume that I'm weak reflecting on this I found that a new principle was established”

Charlie Munger said 'I never disagree with someone else's opinion unless I understand their side better than they do,' and scuttlebutt helps you determine if a business would make a better short than a long by understanding the full picture of a company's competitive position and vulnerabilities.

“another reason that scuttlebut is so important is related to a wonderful Charlie Munger quote he said I never disagree with someone else's opinion unless I understand their side better than they do now in my opinion scuttlebut will help you determine if a business would make a better short than a long”

Fifth key takeaway: a four-step mistake analysis framework: (1) identify significant losses, (2) identify similar thought patterns across losses, (3) find commonalities in why the mistakes occurred, (4) establish decision rules to avoid those patterns.

“I have kind of this four-step process... the first one is looking where your most significant losses are... the second part here is identify similar thought patterns... the third Point here is to try to find similarities in why I made the mistake... so that leads to the fourth Point here which is avoid these patterns as part of your analysis”

Industry insiders and news articles are valuable specialist sources; you can find these by Googling companies, and the people quoted in articles are themselves research targets who can provide additional context and sources.

“a few other areas I like looking at are industry insiders you can find these people easily through Google if you're researching a well-known company you can often find news articles about it and these articles themselves can be helpful on their own but it's actually kind of the list of the people that are referenced in articles that I personally find most interesting you can see who was quoted and you can reach out to them”

When interviewing employees, key questions include: Are they busy or have downtime? Do they enjoy their job? Are they incentivized by commission or salary? What do they think of management? Are they optimistic or pessimistic about the business direction? Are colleagues being hired or fired?

“things that I like to find out from sales people are you know just ask them how things are going are they enjoying their job are they disliking their job are they busy... you might find out how they're incentivized... other things that are really interesting to get is their thoughts on management... then you can just get their General observations on the direction of the business”

The Buffett-Geico story shows that successful scuttlebutt requires: (1) drive to do things most investors won't do (travel weekends), (2) curiosity and preparation with good questions, (3) some luck, and (4) determination to try again if initial attempts fail.

“This story has many interesting implications it shows that you need the drive to go and do things at 99 99% of investors just won't do like travel on a weekend to a company's headquarters you need to be curious about the business and come prepared with questions to show people that you really understand them to some degree and you also need a bit of luck if the janitor was on a break or didn't want to be bothered he may never have let Warren in”

In the context of suppliers, win-win relationships are rare but valuable, like the relationship between Costco and its suppliers; win-lose relationships (where a company stretches payment terms to 60-90 days to improve cash flow) harm suppliers and indicate potential fragility in the customer relationship.

“one of the reasons for Charlie's love affair with Costco was that the business was in this win-win relationship suppliers one just like shareholders and customers this is a pretty rare relationship to find that's not to say that you must have these types of relationships to find successful Investments but it doesn't hurt to find out more about the relationship that a company has with its suppliers... there are many business models which you could call win- lose for example there's a company that stretches out the payments they have to make to their suppliers maybe they take 60 or 90 days to pay their suppliers and they use the float to improve their financials well that works well for the company but not so well for the suppliers”

ASML is a strong investment example because it supplies critical semiconductor manufacturing machinery to many semiconductor companies, giving it a duopoly-like position as a sole supplier of essential technology; this made it a 26% compounder over the last decade.

“there might be one supplier who's key to a whole bunch of different companies that require it for their business to run asml I think is a really good example here I'm by no means a semiconductor specialist but I know that that business supplies many semiconductor businesses the Machinery that's needed to manufacture their widgets and for that reason asml has made an exceptional investment compounding at 26% perom over the last decade”

Practical scuttlebutt comes down to building relationships, which Warren Buffett has done at massive scale, creating a network willing to provide high-quality information; you can systematically build relationships by reaching out to management via investor relations, connecting on social media platforms like Twitter and LinkedIn, and engaging in conversations about investments.

“I think what it really comes down to is building relationships someone like Warren Buffett has just a massive network of people who really truly want to help him and I think these are people that he could get some very high quality information just by picking up the phone... if you know they know someone in an industry or someone who maybe used to work in an industry that he's trying to learn more about now I won't say that anybody can build as extensive a network as Warren Buffett I know I can't but I think I can guarantee that you can connect with some very very fascinating people if you put yourself out there and meet people send emails to management or investor relations and socialize with people on things like Twitter and Linkedin”

Journaling and self-reflection are underutilized tools for improving as an investor; Warren and Charlie avoid language like 'journaling' and 'meditation,' but they likely engage in extensive self-reflection during thinking time. For average investors, journaling helps crystallize and revisit thoughts and experiences.

“there is an area I don't believe they've mentioned enough that I think has been integral to their Improvement but also my own Improvement as an investor as well as other investors that we've had on the show such as John Huber and this is how to utilize journaling and self-reflection to become a better investor Warren and Charlie have primarily stayed away from using words like journaling meditation or self-reflection but I can only assume that during their thinking time they're probably doing a lot of self-reflection”

Tracking investment decisions over time provides data points on your strengths and weaknesses; an app like Journalytics allows users to make predictions with due dates and review them later, providing feedback loop data on forecasting accuracy.

“another interesting lesson here is to track your decision making as often as possible you want data points that you can use in the future to help you understand where your strength and weaknesses lie an app that I'd highly recommend is journalyonsei their platform to make it more and more valuable for its users”

Second key takeaway: employee research reveals cultural claims that CEOs make; you can only verify if culture is actually good by talking to employees. If you find that management is disliked, that's a major red flag suggesting the need for management replacement or deeper investigation.

“if you're talking with the CEO and they say that part of the reason the business has had so much success is because of the culture you're only going to really know this if you start talking with people that are intimately involved with the business... if everyone dislikes management that's a pretty big red flag and that means that you should probably find out why”

When analyzing suppliers, key questions include: how big of a customer is the company for the supplier, is the supplier the sole supplier of a particular material, how easy would it be to find an alternative supplier, what are the payment terms, and what does the supplier think of the company—does it like or dislike the company.

“if you happen to find current suppliers there's a few things that you're going to want to find out and these are things like you know how big of a customer is the company for the supplier you should be looking at if the supplier is the only supplier of a particular material to the company in question how easy it would be for aany to find an alternative supplier you should try to find out the payment terms between the supplier and the company and you should just get an idea of what the supplier thinks of the company that they Supply to do they like them or do they speak about them in negative terms”

The speaker knows a few CEOs of companies they own and has found these relationships invaluable for asking questions, getting business updates, or clarifying gray areas; attending trade shows where CEOs appear can help establish rapport and build relationships where they become more likely to answer future questions.

“I luckily know a few CEOs of companies that I own and they've been invaluable to me when I have questions to ask or want an update or maybe there's a gray area that I want to help understand better if you go to events where CEOs go you know trade shows for some or something like that I don't think it's too tough to establish some rapport with them where they're more likely to answer your questions in the future”

Former customers can reveal switching costs, reasons for departure, competitive advantages of new providers, and management quality—often with less bias than current customers because they don't have loyalty incentives, making them valuable for identifying business weaknesses.

“former customers can tell you a lot of things they can tell you why they stopped paying the business in question they can tell you what's better or worse with the new business that they're working with they can tell you about the switching costs that were involved... the thing that's really good about former customers is just the amount of honesty that you're probably going to get they're probably going to think maybe about that business and not so bright of a light”

While not everyone can build a network as extensive as Buffett's, any investor can connect with fascinating people by putting themselves out there: sending emails to management/IR, socializing on Twitter/LinkedIn, and engaging in the community.

“I won't say that anybody can build as extensive a network as Warren Buffett I know I can't but I think I can guarantee that you can connect with some very very fascinating people if you put yourself out there and meet people send emails to management or investor relations and socialize with people on things like Twitter and Linkedin”

Key personnel in research and development and sales are reluctant to discuss their work due to time constraints, competitive sensitivity, and non-disclosure agreements, but speaking with R&D and sales employees is valuable for understanding growth potential and execution quality

“the problem is that getting information from Key Personnel can be quite difficult because often times these people are very very successful and part of that success means that they're probably working a lot... some of these people for instance in in research and development they're probably not going to be too interested in in sharing the the stuff that they're working on if if there's people from competitors that that are listening in or or whatever or maybe some of them even have you know non-disclosure agreements where they can't talk about”

The speaker owns a trust manufacturer automating operations to double capacity, and spoke with a salesperson to assess whether the company would have sufficient sales team to sell that new capacity, which is critical because capacity without sales ability is worthless.

“there's this trust manufacturer that I own and it's in the beginning stages of utilizing automation to increase its output by nearly doubling it in a very short period of time...one of the main problems this business will eventually face is that they will be able to double their capacity and now on the face of things this is obviously great a company that can double capacity with minimal incremental expens is a very good thing still there's another potential area that must be addressed for this whole process to be successful and that is that they have to to have the salespeople to go out and sell that additional capacity to the market so I got a chance to reach out to a salesperson um in that business”

The speaker found an article on bankruptcy in Canada and contacted the author and bankruptcy lawyers mentioned in it, which led to valuable information and additional resources for understanding a small-cap company.

“there's a small cap that I'm looking at right now and I found an interesting article on bankruptcy in Canada this has led me to contact the author and some of the bankruptcy lawyers in the industry that were mentioned in his article I've been lucky enough to connect with the author Who provided me with some very very interesting information as well as some other resources and from looking at some of the people he quoted in his article I actually landed a call with a lawyer who specializes in in that area”

When researching employees, finding their names via LinkedIn and reaching out is a volume game—many won't respond but enough will, and this approach yields more information than relying solely on official IR communications.

“I'll be honest with you from my experience this is more of a volume game I think you know with LinkedIn a lot of people use LinkedIn for job so if they already have a job they're not necessarily going to be on there probably very often some people are some people aren't so like I said volume game you got to just try to connect with people shoot them a DM and you know there's probably a good chance a lot of people won't answer you and and that's okay that's just kind of part of the part of the uh the Scuttle up process”

The speaker tweeted about a trust manufacturer and a follower replied that he had been a customer of the company, leading to a direct message conversation where the speaker learned why they chose the company and the customer's experience using questions from the scuttlebutt framework.

“I wrote something up on Twitter about the trust manufacturer and had a follower of mine or reader of that tweet tell me that he used their product before as a customer that opened up a wonderful conversation direct messages where I use some of the questions I listed earlier in the episode to learn more about you know why they went with that company and his thoughts on his uh experience working with them”

Alpaca Systems eventually improved by firing their manager customers (broker managers) and selling directly to top-earning brokers, redesigning the software to allow brokers to maintain client relationships even if they left for competitors, which resolved the fundamental misalignment and created a sustainable business.

“alpaca eventually did something quite brilliant they actually fired their customers who were the broker's managers and instead of selling to the broker managers he sold directly to the Brokers themselves so they geared the software to the the specific Brokers and they targeted just the highest earners this allowed the Brokers to improve productivity by using the software while allowing them to keep control over their own clients so if they wanted to leave the software would still work with them”

The speaker used Twitter to share thoughts on a trust manufacturer they own, and a follower/reader responded indicating they had used the company's product as a customer, which opened a conversation where the speaker could ask scuttlebutt questions about why they chose the company and their experience working with them.

“I wrote something up on Twitter about the trust manufacturer and had a follower of mine or reader of that tweet tell me that he used their product before as a customer that opened up a wonderful conversation direct messages where I use some of the questions I listed earlier in the episode to learn more about you know why they went with that company and his thoughts on his uh experience working with them”

The speaker recently found a bankruptcy article relevant to a small-cap research project, contacted the author and bankruptcy lawyers quoted in the article, and gained valuable connections and information—demonstrating the power of news article outreach.

“there's a small cap that I'm looking at right now and I found an interesting article on bankruptcy in Canada this has led me to contact the author and some of the bankruptcy lawyers in the industry that were mentioned in his article I've been lucky enough to connect with the author Who provided me with some very very interesting information as well as some other resources and from looking at some of the people he quoted in his article I actually landed a call with a lawyer who specializes in in that area”

In Timberland research, Lee Cooperman befriended a board member to deeply understand management integrity and talent; he spent weeks in the neighborhood where the owning family lived, visited their church, spoke with friends and neighbors, learned about family dynamics and philanthropy, and eventually got on the same board as the CEO's son to understand the business at even deeper levels.

“lelu mentions that as part of his scuttlebut into Timberland he went and spent a few weeks in the neighborhood where the family who owned the business lived he mentioned things like going to their church and talking with their friends friends their colleagues and their neighbors he would also ask what the manager did for the community... additionally he actually found out that the son of the CEO was on a board and leelu managed to actually get on that board he eventually became friends with the son and with that relationship understood the business at an even deeper level”

Avore Health went from 7 cents to 24 cents in less than a year, then announced a strategic shift away from pharma in Canada toward international expansion, and the stock dropped back to 4 cents as the market repriced the loss of their primary customer base.

“there's a business that I Loosely followed it's a micro cap called uh avore Health this business just crushed it going from about 7 cents to 24 cents in less than a year then they announced a strategic shift away from phies in Canada and that they would actually be going towards going International and now the price has dropped back down to 4 Cent”

Streaming services demonstrate pricing power dynamics and customer dissatisfaction that reveal competitive positioning: Netflix maintains share through superior library despite price increases; Amazon Prime restrains prices but adds ads; Disney raises prices without adding value; these observations reveal customer willingness to pay and service quality differentiation.

“I see the prices of streaming services continue to increase while I think the service isn't getting any better Amazon hasn't really increased prices but now it shows ads every time I watch it Netflix continues raising its adree prices or allows us just to go with uh ads but at a reduced price price and Disney seems to be just increasing its prices but not showing hats so you know I know personally that I like Netflix's Library the most and the pain from having to pay more hasn't forced me to cancel yet”

Streaming service pricing changes reveal customer switching tolerance: Netflix raises prices but subscribers don't leave because library is preferred; Amazon increases prices while adding ads; Disney increases prices without ads; understanding willingness to pay premium pricing signals business power

“I see the prices of streaming services continue to increase while I think the service isn't getting any better Amazon hasn't really increased prices but now it shows ads... Netflix continues raising its adree prices or allows us just to go with uh ads but at a reduced price price and Disney seems to be just increasing its prices but not showing hats... I know personally that I like Netflix's Library the most and the pain from having to pay more hasn't forced me to cancel yet”

Speaker made a prediction in September 2024 that Dino Pets stock would be unlikely to move due to lack of new store openings; the app alerted him 3 months later that the stock had appreciated 33%, demonstrating he is poor at predictions and that he should either stop making predictions or heavily reduce certainty in them.

“I made a prediction back in September of 2024 and that was that the share price of Dino psk was unlikely to move due to a lack of new store openings so I was alerted by the app at the end of uh 2024 about 3 months later and when I checked the share price I realized it had already appreciated by about 33%”

Finding supplier identities can be difficult as some public companies explicitly disclose suppliers while others keep them secret to avoid tipping off competitors; when companies won't disclose, investors may need to reach out to management, employees, competitors, or industry insiders to identify suppliers.

“finding out who they are can be pretty difficult at times some public companies might say explicitly in their documentation but I think some of them also like to keep it a secret so that's to not tip off any competition now if that's the case if they don't want to talk about it openly um it definitely requires some more work and Innovation to find out who the suppliers are you might have to reach out to management your or employees to find out if they'll share it with you um or you can look at other competitors or industry insiders and and try to get to suppliers that way”

NRP (Retail) is a good example of applying the earnings-power-focused principle because the speaker cares mostly about future earnings power with assets providing downside protection, which proves more robust than pure sum-of-the-parts analysis.

“I think NRP is a good example of this where I care mostly about earnings power but the assets provide a decent floor of if something were to happen to the earning stream”

Shareholders are valuable scuttlebutt sources because they may have already conducted deep investigation and can guide investors toward information sources; they can share working hypotheses about what makes a company succeed, helping investors accelerate their own research

“shareholders who are a very good source of information some of them might have already done a ton of scuttlebutt themselves and can help share information with you or guide you in the right direction I can't tell you how vital this can be especially when you're first learning about a new business... current shareholders will have their hypothesis that they will share with you”