Investigative Journalism: A Path to Smart Investing

Hello investors,

Today, we're diving deep into the waters of investment wisdom, focusing on two profound methodologies - the Scuttlebutt method and Investigative Journalism. If you're an aspiring investor looking to gain an edge in your investment decisions, this newsletter is for you.

Scuttlebutt Method: This investing approach was introduced by Philip Fisher, a renowned value investor. It involves gathering information from a myriad of sources about a potential investment. Instead of relying solely on company reports and financial statements, the Scuttlebutt method seeks insight from vendors, customers, competitors, and even former employees to form a more comprehensive understanding of a company's prospects.

For instance, an investor using the Scuttlebutt method might have discovered that Apple Inc. was going to be a strong performer in the mid-2000s by noticing the growing popularity of their iPod and MacBook products, even before it reflected in their financial statements.

Investigative Journalism: Similar to Scuttlebutt, this is an in-depth exploration approach that seeks to uncover hidden details about a subject matter. It involves meticulously examining and cross-referencing facts to expose realities that are often overlooked or hidden.

For example, an investigative journalist or an investor employing these methods might have predicted the financial crisis of 2008 by connecting the dots between the unchecked growth in subprime lending and the unsustainable rise in housing prices.

Now, let's get practical. Here are five steps to effectively harness the power of these methods:

• Broad Information Gathering: Go beyond company reports and filings. Connect with customers, suppliers, competitors, or anyone related to the company or industry.

• Cross-Verification: Always cross-check the information you receive from various sources. This helps to filter out biases and provide a more balanced perspective.

• Seek Contrarian Opinions: Always look for differing opinions. This not only helps you consider all possible outcomes but also exposes potential red flags that others may have overlooked.

• Look at the Big Picture: While focusing on the details is important, it's equally crucial to understand the macroeconomic factors and industry trends that can affect a company's performance.

• Patience is a Virtue: Both the Scuttlebutt method and investigative journalism require time and patience. Don't rush the process. Quality insights often come to those who wait.

Now, consider the case of Amazon in the early 2000s. By talking to customers and suppliers (step 1), one could have picked up on Amazon's exceptional service and growing influence in the retail industry. By comparing these insights with industry reports and data (step 2), the picture would have become clearer. Searching for negative views (step 3) might have raised concerns about profitability, but looking at the wider trend of increasing internet usage (step 4) would have validated the company's growth potential. Patience (step 5) would have paid off handsomely as Amazon grew to be one of the most valuable companies in the world.

Or, take the example of the downfall of Enron. Through the Scuttlebutt method and investigative journalism, careful investors could have seen signs of accounting irregularities and excessive risk-taking. These signs would have alerted them to steer clear of what seemed, on the surface, to be a profitable investment.

In conclusion, while the Scuttlebutt method and investigative journalism require effort, they can greatly enhance your ability to make informed and profitable investment decisions. Like Warren Buffett's advice about being "fearful when others are greedy and greedy when others are fearful," these methods equip you with the knowledge to resist the herd mentality and make sound investment decisions based on facts, not hype.

As Charlie Munger often says, "The big money is not in the buying or the selling, but in the waiting." So, equip yourself with information, apply patience, and let the compounding magic happen.

Stay curious and diligent, and the world of investments can unfold rewarding opportunities for you!

Wish you investment success!