The Motley Fool: Listening to scuttlebutt can really pay off
A lot can be learned about a company or industry by sniffing around and asking questions. In his 1958 masterpiece “Common Stocks and Uncommon Profits” (Wiley, $20), Philip Fisher advocated this practice, calling it “scuttlebutt”:
“Most people, particularly if they feel sure there is no danger of their being quoted, like to talk about the field of work in which they are engaged and will talk rather freely about their competitors. Go to five companies in an industry, ask each of them intelligent questions about the points of strength and weakness of the other four, and nine times out of 10 a surprisingly detailed and accurate picture of all five will emerge.”
Imagine you’re considering investing in beverage-maker Hansen Natural. It might look good on paper, but you should still check out the scuttlebutt. Give the company’s Investor Relations department a jingle and ask some questions. Find out who its top competitors are. Then call them. You might even track down a beverage trade association and see what information it can provide.
Computers are bringing scuttlebutt to your doorstep. Search the Web, and you’ll likely find valuable industry information. At Web sites such as http://boards.fool.com, you’ll find individual message boards for thousands of companies like Hansen. There you can share intelligence with other scuttlebutters.
Someone who lives near a Hansen plant might visit it late at night and on the weekend, to count cars in the parking lot and see if workers are toiling overtime. They might report on discussions with local employees and suppliers. You and others across the country can don trench coats and visit retail outlets, checking to see how many customers are buying Hansen’s and how loyal they are. Find out which drinks are rising and falling in popularity. Try to interview store workers and owners, too. Together, this information should be quite revealing.
Ask the Fool
Q: Should I use consumer credit counseling organizations to help me get out of debt? Do they have any drawbacks? — C.R., Indianapolis
A: Be careful with such outfits. Using them can do serious harm to your credit rating. If your credit report reflects that you’ve sought professional help, it can decrease your credit score significantly — sometimes as much as a bankruptcy can. Worse, while you proceed to dig your way out of debt (and sometimes for years afterward), many mortgage lenders won’t consider you for a loan.
Exhaust all other options before resorting to these organizations. Discuss your situation with a trusted banker or mortgage officer. And even before you do that, learn more about credit card debt and how to get out of it — perhaps starting at www.fool.com/ccc.
If and when you want to look into counseling organizations, seek a nonprofit one. One resource is the National Foundation for Consumer Credit (NFCC), which has many member agencies. Call them at 800-388-2227 or visit them online at www.nfcc.org. First, though, get some vital info from the government at www.ftc.gov/bcp/conline/ pubs/credit/fiscal.htm.
My dumbest investment
I invested in an assisted-living company that my wife worked for. It was expanding its facilities nationwide, and its numbers were looking good. Unfortunately, the company was also cooking the books, listing loans as assets. Anyway, the stock went from a high of about $23 to eventually around 30 cents. My wife had options that she exercised at a good time, beating the bad news by a couple of weeks. I, being the investment genius that I am, tried to ride it out and finally got out at about 30 percent of what I paid. There was the usual lawsuit initiated, and I got a few hundred dollars out of the settlement. — Mike Wallace, Prosser, Wash.
The Fool Responds: This is a good reminder that bad things can happen even to companies you think you know well. Study financial statements and look for managements that inspire trust, but know that even good investors get blindsided sometimes.