A (20:47)

FinTool is ChatGPT for SEC filings and earnings calls. Are you still doing keyword searches and going to the individual filings and using control folder? That's the old way of doing things before AI. With Fintool, you can ask any question and it's going to automatically generate the best answer. So they may pull from a portion of an earnings call or a 10k, whatever it may be, and then answer your question. The best part is that every portion of the answer is cited with the source document. Now, if you've tried to do any of this in ChatGPT, you may know that the answers are often wrong or full of hallucinations. The way Fintool is able to outperform ChatGPT is their focus on the SEC filings. If you're an analyst or a portfolio manager at a hedge fund, check them out@fintool.com that's fintool.com I'm not exactly a tech genius, but I know one thing for sure. If I want my business to succeed, I need a good looking website. Bluehost makes getting a website up and running easier than ever before. With their AI design tool, you can quickly generate a high quality, fast loading site instantly. I could customize, optimize and monetize everything exactly how I wanted and within minutes I had my site up and running. You definitely don't need to learn how to code and Bluehost has me covered 24. 7 with top notch security. I can sit back, relax and focus on my customers, not outside threats. It doesn't matter if you're a content creator, an entrepreneur or a blogger, whatever your hustle may be. Bluehost has everything you need to build and secure your online presence quickly, easily and reliably. So make 2025 your year and launch your dream website today. Head over to bluehost.com and start building something special. That's bluehost.com if you're a startup founder, finding product market fit is probably your number one priority. But to land bigger customers, you also need security compliance. And obtaining your SOC2 or ISO 27001 certification can open those big doors. But they take time and energy pulling you away from building and shipping. That's where Vanta comes in. Vanta is the all in one compliance solution, helping startups like yours get audit ready and build a strong security foundation quickly and painlessly. How Vanta automates the manual security tasks that slow you down, helping you streamline your audit. And the platform connects you with trusted VCSOs to build your program, auditors to get you through audits quickly in a marketplace for essentials like pin testing. So whether you're closing your first deal or gearing up for growth, Vanta makes compliance easy. Join over 8,000 companies, including many Y Combinator and tech star startups who trust Vanta, simplify compliance and get $1,000 off@vanta.com billionaires. That's V A N T A dot com billionaires.

B (23:41)

All right, back to the show. So to finish this section off on sleuthing customers, I'll add a few customer types that you could talk to to help you gain information. So we kind of talked about current customers, but you can also look at former and potential customers. You'd want to ask things that would help you determine if the company you're looking at has, you know, a product that's actually worth buying. And similar to talking with current customers, the thing that's maybe even better about talking with former or potential customers is they're going to give you unique insights that current customers might not provide. Because they probably don't have a filter and they don't, maybe they're not in love with that product compared to current customers. So they can give you different perspectives. So from potential customers you can just learn things like why they're doing business with the business competitor. That alone is a really, really good question to ask because chances are they might, might have actually tried the product of the business that you're looking at. And they're gonna be able to compare that to different competitors products and tell you why they think one product is better than another. And sometimes you might find that the business that you're looking at has an inferior product. And that's a very, very important thing to know. Essentially what you're trying to do is find out why they aren't a customer. And that alone can really, really help you illuminate any of the businesses weaknesses that it might have. So 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 from using one product to switching to another product. And 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, which you know, could obviously bias them in other directions. But I think it's, it's just a good way to get a variety of different perspectives and, and really, really get to the truth of why a company's products are, you know, better or worse than its competitors. Or maybe they're all the same, you never know. But I think that this information is really useful because it can really help you identify potential red flags that you might not be able to identify in any other way. Now let's move on to what you can learn from a business's employees. This includes people from factory workers all the way up to the CEO. These are gonna be people like low level employees, you know, people involved in marketing the business or selling products to customers. Executives of a variety of different executives, research and development, board of directors, current employees, former employees, and even competitors employees. One of the cool things you can do when you're first starting this is just make a list. Try to find current and former employees. Former employees is a little bit harder to figure out. I personally haven't really figured that out yet. But you know, for current employees you want things like names, find out their connections to people inside of the business or outside of the business and just get as much detail as you can on people. For lower level employees, it can be a little bit harder to find them as they're not necessarily featured on a business's website. If you look at the proxy statement or a circular of a business, they're going to tell you quite clearly who are management, who are the board directors. So those names are easy to come across. But if you are looking for lower level employees, sometimes if you go to a company's website, you can see if they have an About Me section and sometimes the About Me section will actually talk about lower level employees, maybe have some quotes. And these quotes are usually, I don't even know if these quotes are actually from the employees, but sometimes they share their name. So an easy way to find out these employees is put their name into Google or put their name into LinkedIn. And that's the way that I personally have found a ton of employees. And then even if you can't find the names of employees, LinkedIn's still super helpful. So if you use the search function on LinkedIn, there's actually quite a bit of information you can find. So you can go on LinkedIn, use the search function, look at the name of the company that you're looking for, then you go to the people tab and basically all the company's employees who are on LinkedIn who list that business as their employer will be on there. Then you can try to reach out to them on LinkedIn. Now, I'll be honest with you, from my experience, this is more of a volume game. I think with LinkedIn, a lot of people use LinkedIn for jobs. So if they already have a job, they're not necessarily gonna 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 there's probably a good chance a lot of people won't answer you. And that's okay. That's just kind of part of the, the scuttlebutt process. But there are enough people that will answer you that. It's. I think it's worth it. So Philip Fisher had some great strategies for scuttlebutt when it came specifically to this segment here about employees. So when Philip sought answers to questions about what you should look for in an investment with a lot of potential, he wrote, one way that immediately suggests itself is a logical but rather impractical this is to find someone who is sufficiently skilled in the various facets of management to examine each subdivision of a company's organization and by detailed investigation of its executive personnel, its production, its sales organization, its research, and each of its other major functions form a worthwhile conclusion as to whether the particular company has outstanding potentialities for growth and development. Now, the problem is that getting information from key personnel can be quite difficult because oftentimes these people are very, very successful. And part of that success means that they're probably working a lot, and they also work for very, very successful companies which have very high expectations. So a lot of times they're not necessarily going to be too eager to just talk to some stranger about their job. And additionally, you know, some of these people, for instance in research and development, they're probably not going to be too interested in sharing the stuff that they're working on if there's people from competitors that are listening in or whatever, or maybe some of them even have non disclosure agreements where they can't talk about it. But you know, nonetheless, Phil like 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. And these are things that you can learn from not only the heads of departments, but also just from lower level people in sales as well. So things that I like to find out from salespeople 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 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. The incentivization systems are easy to find on public documentations for management, but not necessarily for employees. So I'm not going to tell you to go and ask how much money someone makes, but you know, if you just ask them how they're incentivized, Is it based off of a commission or whatever? That's important information. And if you develop some sort of relationship, I think you can probably get that kind of information. Other things that are really interesting to get is their thoughts on management. You know, do they like management or do they dislike management? I think that's pretty interesting to know. And if everyone dislikes management, well, that's probably a pretty big red Flag, and then you can just get their general observations on the direction of the business. If you talk to a bunch of people and they're all seemingly pretty down on the business, well, that's an interesting sign. And also on the other side, if everyone's very, very happy about the business and giddy and excited, well, that's another really, really good sign as well. And then, you know, 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 alone is a really good signal that maybe the business is very unlikely to increase its sales anytime soon. Now, another area that Philip really placed a lot of emphasis on was research and development. He knew that a business that had the potential to be worth multiples of what it was today needed an R and D department that could continue to push the company to create new, innovative and excellent products that also had the right salespeople in place to go out and actually sell that product to the market. So I think you can kind of lump these two areas together to some degree. So there's this Trust manufacturer that IO, 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, Once the automation equipment's completely installed. I've had the chance to speak with management multiple times and done my best to learn more about who supplies their technology and, you know, how it's going to work once it's fully installed and operational. Now, 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 expenses, 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 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 in that business. And so I asked them a few things to understand things like how the process is going with sales. You know, I want to know, are they busy? Get a read of how things are going so that I can hopefully be directionally correct. You know, are they happy with the process? Are they unhappy? Lukewarm? I want to know things like, are they adding new salespeople to the team? If they're adding, that's generally a good sign that hopefully there's additional demand for their product or that they're able to find additional customers to try and send people out to sell to. Another question would be, you know, how is the automation equipment going to impact their customers? Are their customers going to get cost savings, improve service and things like that? So if you have the ability to chat with current employees, a few things that you should try to learn. You know, gauge their temperature on the company. Find out if they're overworked or underworked. Find out how promotions are handed out. Are they happy with them, are they unhappy with them. Find out how they're incentivized and you know, which KPIs they're incentivized on. Find out what they think of management. Find out, you know, 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, though? These are all interesting points to improve your decision making. So in the sleuth investor admiral says 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 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 the optics look good. But in an informal setting, you may get people to open up more. But I, like I said, I do realize this is a lot of work, which is why I still haven't gotten around to trying it myself. A few other people who are worth chatting with are members of the board of directors, although they have to be very, very cautious about what they say. This is probably good. You know, you don't want them getting in trouble giving insider information, but they can still be pretty good source of information. 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 pump up the CEO and agree with everything that he says. You may want to find out how they came about that board seat. You know, was it because they went to college with the CEO or someone else on the board or maybe another executive? Or was it because they've been in the industry for 30 years and they've done incredibly well with other businesses? You should look at the track record of board members. Do they have a long track record of success or failure with some of the other businesses that maybe they've either managed or been a board member of? And then another one here that I think is really important is, what are they doing for income? Is this board seat their primary source of income? Because, you know, if they're only getting income from being on boards of a few companies, that's very important because that means that they're probably not going to go out of their way to make things difficult if they see that things aren't being managed properly. You know, and really the. The point of the board is they're employed for the shareholders, not the CEO. But if you have someone who really needs to keep their board seat, chances are they're getting more likely to be leaning towards agreeing with a CEO to not make their job get into any jeopardy. So another great lesson that I've learned from talking with employees was one of Buffett's most famous investments, which was geico. So Buffett learned about GEICO when he was still a student of Benjamin Graham's at Columbia University. So he was in the library one day and he realized that Benjamin Graham was the chairman of geico. So I think this was just like a week later. He ended up making the trek to Washington on a weekend, and he got to the GEICO hq, but was disappointed to learn that the doors were locked, the location was closed for business. Luckily, there was a janitor who was working in there and let Buffett in. And so the janitor brought Warren to Lorimer Davidson and who was the only person who was working in that day. And he actually spent four hours answering just endless questions from a young and curious Warren Buffett about GEICO and just the insurance business in general. Warren said this one event changed his life. Now, this story has many interesting implications. It shows that you need the drive to go and do things that 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. And maybe Warren would have just passed on that business if he didn't have the Dr. To go and give the headquarters another visit. Now let's transition here and discuss another critical area of a business's operations, which is its suppliers. This is an area that Philip Fisher didn't spend too much time on in common stocks and uncommon profits. So we're going to look at two other books, the Sleuth Investor and Scuttlebutt Investor, for some ideas on why and how we should look at suppliers to kind of better understand that relationship between a company and its suppliers. Before that, I recently listened to a great podcast where Mohnish Pabrai was discussing win win business relationships. Part of the reason for Charlie's love affair with Costco was that the business was in this win win relationship. Suppliers won 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. So here's what Mohnish said about win lose relationships between a business and 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. So that's kind of an example of a win lose business. Now, businesses can still succeed with these win lose relationships, but like I said before, it's important to understand this relationship in a little more more detail. There are multiple ways to look at how you can use information from suppliers to improve your decision making. In the Sleuth 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. Abner has a bunch of strategies that take a lot of work but can be highly valuable to anyone who wants to put the effort in. Now one great story from Abner's book was about a sleuth he met who he called Michelle. 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 Adra 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. So let's get into some of the details of how Michelle sleuth and made this windfall. So across from Michelle's desk was the office of an investment bank, which Abner refers to as the bank of Industry. Now, there are only two primary outcomes that would happen. Either the debt would be restructured, which was very good for the company, and the stock price, or the bankers would force the company to pay, which tended to be unfavorable for the business and its stock price. So it's easy to understand why. You know, if a business has its interest payments cut, that means its pre tax income goes up and earnings will probably show a bump. The company must pay increased interest expense, pre tax income decreases and earnings will suffer. So Michelle had observed that there was an ad agency that she watched where the business borrowed about $10 million from this bank. And unfortunately, what happened was the company lost a key customer. Now, the bank of Industry, in order to recoup its debt, wanted the business to slash costs, basically fire people in order to raise money to service the debt. But the business's executives and key personnel threatened to quit en masse if the business started doing this. Now, this was a horrible proposition to the bank because for this business, employees and executives were not easily replaceable, and if they left, the company would likely be next to useless. So the bank relented. And once the debt was restructured, the share price increased by 50% in a very, very short period of time. Now, knowing this case study, Michelle dreamt of being a fly on the wall in one of these meetings. Now, obviously there was no way for her to arrange this, and taking advantage of it would be illegal anyway. But there were other ways for her to sleuth legally, which she ended up doing. So she was just a keen observer of people. And most of the time, the bankers were very cool, calm and collected, while the business executives who were coming in to talk to their bankers were more nervous when they were walking in, while the business's executives were nervous walking in. But on one occasion, she observed the complete opposite. The executives look calm entering the office while the bankers actually look 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. Now during this process she really wanted to know who this company was and so she just looked at them and tried to find a logo or something on that would identify who they were and ended up seeing a logo on one of the shirts of one of the people that had been part of the meeting who worked for the business. So after that she looked at their annual report and found the names and pictures of the executives which she then used to verify their identity. It was indeed the company. Abner refers to it here as Filmx. It was similar to the ad agency case study I spoke about where cost cutting wasn't in the cards. So given the behavior of the bankers and the executives, it was quite clear to Michelle that the executives had just gotten a win in terms of their financial health. So she ended up buying shares and made about 90,000 over two days after the news of the restructuring had been announced to the public. Now here's an excellent summary of the experience. Michelle was not an employee of the bank of Industry, nor an employee of Film X. Not of their lawyers or accountants or anyone else defined by law as the company's insider. She had not bribed anyone nor stolen any information. She had merely observed some physical events that took place off of Filmx's premises in a public hallway. Yet she could say with an extremely high certainty that the business of industry was about to cut Film X's debt and that Film X's stock would in all likelihood soar as a result. Now, as the story above illustrates, a business's 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 and things that you can use to your own advantage. Let's take a quick break and hear from today's sponsors. I've been playing prize picks recently and I have no idea why I waited so long. There are several reasons I enjoy using prize picks to get some football action. First off is the ease of use. I can quickly deposit money into my prizepix account with my MasterCard. Second is the opportunity set with prize picks. I can win up to 1000 times my money. And lastly, the NFL playoffs are starting soon, so why not get involved in the action for the last few weeks of the regular season and even the playoffs? So if you think Josh Allen is going to light up his next opponent for 250 passing yards, or if you think Lamar Jackson is going to throw for more than 1.5 touchdowns, Prizepix is the place to be. Cook up whatever hot take you can imagine with your friends and win real money this football season when you and your crew run your game on Prize Picks. Download the app today and use code WSB to get $50 instantly after you play your first $5 lineup. Download the app today and use code WSB to get $50 instantly after you play your first $5 lineup. Price picks Run your game for decades.

A (44:03)

Real estate has been a cornerstone of the world's largest portfolios. But it's also historically been complex, time consuming and expensive. But imagine if real estate investing was suddenly easy. All the benefits of owning real, tangible assets without all the complexity and expenses. That's the power of the Fundrise Flagship Real Estate Fund. Now you can invest in a $1.1 billion portfolio of real estate starting with as little as $10 4700 single family rental homes spread across the booming Sun Belt, 3.3 million square feet of highly sought after industrial facilities. Thanks to the E Commerce wave, the flagship fund is one of the largest of its kind, well diversified and managed by a team of professionals. And now it's available to you. Visit fundrise.com WSB to explore the fund's full portfolio, check out historical returns and start investing in just minutes. That's fundrise.com WSB carefully consider the investment objectives, risks, charges and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the Fund's prospectus@fundrise.com Flagship this is a paid advertisement. This is a message from our sponsor Intuit. TurboTax Taxes was dealing with piles of paperwork in frustrating forms and then waiting and wondering and worrying if you were going to get any money back. Now Taxes is easily uploading your forms to a TurboTax expert who's matched to your unique tax situation. An expert who's backed by the latest technology which cross checks millions of Data points for 100% accuracy. While they work on your taxes, you get real time updates on their progress and you get the most money back guaranteed. All while you go about your day. No stressing, no worrying, no waiting. Now this is taxes intuit turbotax get an expert now on turbotax.com that's turbotax.com only available with TurboTax live full service real time updates only. An iOS mobile app. See guarantee details@turbotax.com guarantees all right, back to the show.

B (46:20)

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? If the supplier is the only supplier of a particular material to the company in question, how easy it would be for a company to find an alternative supplier. 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? A few themes here that you want to dig into is just 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 essentially be done if the supplier can no longer supply the business. This is why having a business with multiple suppliers is good and a good thing to know. It protects you. If something goes wrong with one supplier, it's good to have, you know, another couple suppliers on hand that you can use just in case something like that happens. Additionally, it also allows the business to negotiate rates between suppliers to find the best possible deal for the company. Also, if a supplier is the sole supplier of a key piece to many different businesses, you might run into just a great investing opportunity. You know, 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% per annum over the last decade. Now, just like former employees, speaking with former suppliers can be a great source of information, as you're likely to get to the truth quickly. It also helps identify any potential weaknesses the business might have. You know, you should probe into why the business relationship was severed, what the former supplier thinks of management, the history of payments, whether they were on time or late, negotiating leverage between the supplier and the company, etc. If you find out the supplier left because it was constantly being squeezed by the business, that's a red flag. And that might signal that there's other suppliers that may end up doing the same thing in the future. Now, let's look at specialists or people who aren't intimately involved in a business sense, but can be invaluable in learning more about the business. They're often very willing to chat and share their knowledge. The most important people to talk to in this segment, I think, are the businesses 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 or niche. If, on the other hand, all your scuttlebutt identifies a different business as the one that scares everyone else the most, well, maybe that means you're looking at the wrong business. Now here's some questions that you can ask to understand competitors and their dynamics concerning the business that you're doing. Scuttlebutt on which competitors scare you the most and why? Which competitors scare you the least and why? Who are your suppliers? What are the biggest hurdles to success in the industry today and what are you doing to overcome them? Are you hiring employees or firing employees? And if the competition is firing employees, who are they going to and if they're hiring new ones, where are they coming from? Now, are you the lowest hanging fruit in the specialist category are analysts themselves. You can often get your hands on analyst reports. Buffett has 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. Now, usually when reading an analyst report, I enjoy learning about their particular perspective. They might have looked at a business differently than I have. And knowing this can be helpful in the scuttlebutt process. Since they've already announced to the world that they are researching the business, they are more likely to contact you if you have further questions. But at the end of the day, Buffett is correct and you you should never rent conviction from others on an idea. If you do this, you will lose money or you're going to make egregious mistakes during downturns. Now, 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 and make your own. 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 the list of the people that are referenced in articles that I personally find most interesting. You could see who was quoted and you can reach out to them as well as the original author and see what kind of information you can get. 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 that area. Now one of my favorite high profile scuttlebot techniques is from Li Lu, who my co host Clay spoke about in depth on tip 636. Lilou gave an excellent case study about the importance of acting like a journalist when looking at a stock. One quote stuck out to me from his presentation which was you gotta have a very active, very curious mind and you can't be satisfied with bogus answers. He added, most people who have built businesses also have a big personality, have a history that you can go audit, and leaves a trail of evidence of what kind of person they are and what they have done, how they deal with different situations. Leeloo mentions that as part of his scuttlebutt 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, their colleagues and their neighbors. He would also ask what the manager did for the community and what people thought of him. He also mentions trying to learn about family dynamics, educational history and their history in philanthropy. Additionally, he actually found out that the son of the CEO was on a board and Li Lu 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. I love this story because it's proof that the further down the rabbit hole that you go, the better the picture of reality that you'll get. But you know, I also have to admit that doing this is nearly impossible for the average person who can't spend, you know, weeks away from their job and may not have the means or even the inclination to put themselves up for weeks at a time. In theory, it's great. You will 100 learn a lot about a person doing this. But in reality, I'm not sure even the top hedge fund managers worldwide are going to employ the strategy if they're managing billions of dollars. Maybe they could get someone like an analyst to get their boots on the ground and learn more about the managers that way. Now, with this thought, I want to move on to discuss some of the ways that you can use this information on scuttlebutt to make better decisions without necessarily having to leave your home for weeks at a time and spending thousands of dollars on travel costs. For those who can, well, congrats, but I think you're probably in the minority. 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 and asking if 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. 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 used some of the questions I listed earlier in the episode to learn more about why they went with that company and his thoughts on his experience working with them. So even if you don't want to go full sleuth, I think many great points are here to help you get an informational advantage. Bill Miller says there's three advantages that investors can get, which is analytical, informational and psychological. While I, I agree with Bill that the psychological edge is probably the easiest to get, but might be the hardest to portray in reality. Anybody can get an informational edge if they're willing to speak to the right people and learn more about a business. Most investors base 100% of their decision making on accessible information. Things like annual reports, quarterly reports, earnings releases, the Q&As, use items, and you know, quantitative information that you can get on the Internet. Now, like I've already kind of drilled this into you, I hope by now you know, the problem is that everyone has access to this information, so it's really hard to actually get a variant perception. But if you talk to the right people around a business, you can get information that maybe these massive investors or billion dollar hedge fund managers don't have access to or aren't willing to put the work in to get access to. And this is the kind of information that can keep you invested in a company when maybe hedge funds are dumping it. If you know, the long term fundamentals of the business are still in great shape, but investors are dumping due to maybe some short term headwind. You can take advantage of this by buying more shares. But this exact scenario depends on your conviction about an idea. And finding hard to find physical information will be one underutilized way to build conviction that very few will try and find. So if you do this on a few businesses, you can do incredibly well on just a few ideas which can help propel you for many, many years. Now that you have a good idea of how to do scuttlebutt on a business, I want to share some interesting findings about how to continue improving your circle of competence. 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. 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. They're also so intelligent that they don't necessarily need to record their thoughts in a journal. However, for an average person like myself, it helps a lot to record some of my thoughts and experiences in a journal so that I can more easily reflect on them in the future. I've learned to value journaling so much because of some of my learnings from a wonderful interview the folks from journalytic did with John Huber. In that chat, John said that one of the most significant use cases of his journaling was going back and looking at his mistakes. Since watching this, I've tried to journal more about my mistakes and get to the essence of why I made these mistakes. This alone has been very, very powerful for helping me improve. But there's another area of improvement that relates directly to the circle of competence. God and Bay had a great definition of what the circle of competence is. When you are unsure and doubtful about what you want to do, do not do it. That's it. Now the way that I weave this into my journaling is to look at some of my previous failures which identify what I'm maybe unsure or doubtful about. Now, one of the failures that I've been reflecting on is probably going to go against the grain for many of the value investors that listen to the show. 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 2 billion, while the company is only trading for a billion or $500 million. I've looked at a few of my previous investments and determined 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 and so here's how I have it written in my journal. When looking at a business that is attractive primarily because it's valued below some of the parts, do not bother with the business. Instead, focus on the business. From a future earnings power perspective, the sum of the parts can be seen as downside protection, but not as a reason to purchase. I think NRP is a good example of this where I care mostly about earnings power, but the assets provide a decent floor if something were to happen to the earnings stream. Now this is a principle that I've naturally gravitated towards over the last few years, but I think it's been worth reflecting on to ensure that I'm not making, hopefully money losing decisions in the future. 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 strengths and weaknesses lie. An app that I'd highly recommend is journalytic, which offers you just a ton of data for free. They're also very eager to improve their platform to make it more and more valuable for its users. On a recent trip to New York, I was chatting about predictions with members of the Richer, Wiser, Happier Masterclass at a dinner. Part of journalytic allows you to make predictions with an established due date. Humorously, I made a prediction back in September of 2024, and that was that the share price of Dino Polska was unlikely to move due to a lack of new store openings. So I was alerted by the app at the end of 2024 about three 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. B At least being wrong resulted in making money, which is great because I think it's usually the opposite way. And c I should probably not bother making predictions in the future. Or if I do, I should heavily reduce the certainty that I'm going to be correct. Now, not only can journaling help you avoid mistakes, but it also illuminates your strengths. And if you continue investing in what you're strongest at, you tilt the odds in your favor that you will continue making these successful investments. If you can continue doubling down on your strengths while avoiding weaknesses, you should have a lot more success than investing. If you journal or even think deeply about mistakes, you're going to gain pretty significant insights into what you are doing that works and doesn't work. Additionally, you'll be able to save even more time as you learn what new ideas can go into the too hard pile at a much quicker pace or if you identify a weakness in your thinking. If you have time to learn more now, you know certain areas you can learn about to maybe turn a weakness into a strength. To finish today's episode, I just want to go over five of my biggest takeaways that I think listeners can hopefully utilize to improve their scuttlebutt and decision making. So when discussing customers here, learning for customers is just crucial to learning about a business. You can take the Peter lynch approach and research businesses that you're already a customer of. Lynch gave the example of going to the shopping mall and learning more about a business. That way you could talk with family, friends, colleagues to see which products they can't live without. You will understand the product and what makes it great. If you are the customer, you will know why you use it versus the competitor. You'll appreciate the switching costs involved with using a different product, you'll know if the product keeps you as a captive customer and if you are annoyed or happy to pay more. Over time, for instance, I see the price 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 ad free prices or allows users to go with ads but at a reduced 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. But if you think in this light about the product of a business you're researching, you're going to learn some very valuable information. The second point here is just on sleuthing employees. So if you're talking with a 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. A CEO can of course say a culture is good. And then when you talk to people, find out that the culture is horrible or there is no culture. And that's very important information because culture is very, very important, especially if you're a long term investor. And the only way that you're going to find this out is from talking with employees or you're going to find out when it's too late and the share prices is probably going to go down on you. So you can also just learn a lot about actual management from talking with employees. They can help you understand if a management is well liked and effective. If everyone dislikes management, that's a pretty red, red flag. And that means that you should probably find out why and if maybe there's a suitable replacement who might be even better than the current management. Another good thing about talking with employees is getting an update on the business. I luckily know a few CEOs of companies that I own and they've been invaluable to me when I have qu questions to ask or want an update or maybe there's a gray area that I want to 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. So the third one here on suppliers, you know, for Me personally, I'm a long term investor. So, you know, sleuthing for events that are only going to make a difference to the share price for a quarter or two or, you know, even a couple days, it just doesn't interest me very much. So the part about suppliers that interests me the most is finding out how they're involved in a business's supply chain. I'm looking at, you know, if I know a supplier likes working with a company and wants to keep their business and has great relationships, that's very, very valuable. And it shows that hopefully this business will continue being supplied by their suppliers for a long period of time. You know, for any investor, whether you're looking at a manufacturer or a tech business, there's usually a supplier angle. And, you know, I think learning more about that relationship can be very helpful in learning more about how just the business works. The other interesting part about suppliers is that 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 as to not tip off any competition. Now, if that's the case, if they don't want to talk about it openly, it definitely requires some more work and innovation. To find out who the suppliers are, you might have to reach out to management or employees to find out if they'll share it with you. Or you can look at other competitors or industry insiders and try to get to suppliers that way. So the fourth area here is just talking to specialists. 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. In this sense, you know, 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 and then it's up to you to analyze if their evidence is more compelling than the evidence for the bulls. If it's more convincing, then your current beliefs, you know, that maybe you don't need to continue researching stock or maybe if you own it, then maybe you should sell it. So, you know, just, just realize here we talk about this a lot. I talk about this a lot. Everyone has biases and it can be very helpful to determine what that bias is before you talk to a specialist on a business. Because, you know, if you talk to someone and it's their biggest position, it's very likely that they're going to be thinking quite highly of it. So just understand that, you know, if you can find specialists that maybe have no vested 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. So last one here is about my framework for learning from mistakes. I wanted to just quickly discuss a general framework that I've used for learning from my own investing mistakes that I think will be very, very helpful. So 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. So for me I also look at businesses where perhaps the investment didn't lose money, but my thought process on it ended up being kind of wrong. So a good example of that is Heritage Growth Properties where I made money on the investment, but I, I didn't see it as a successful investment because the thesis just didn't really play out as I thought. So the second part here is identify similar thought patterns. You know, some of my least successful investments have been when the primary driver of the investment, like I just said, was doing this some of the parts calculation. I'd see very clearly that the sum of the parts was much higher than the share price and then buy it hoping that gap would close. Now I've had kind of about four investments in this area and three of them I lost money, so and a pretty significant amount. So that was definitely an interesting learning point. The third point here is to try to find similarities in why I made the mistake. So I think the similarities here are pretty self evident. It's just looking at businesses where the sum of the parts is higher than the stock price. I know that this is a thought pattern that has attracted me in the past and it's destroyed capital. So if I'm looking at newer investments, I can use that to my advantage. So that leads to the fourth point here which is avoid these patterns as part of your analysis. So now that I'm aware of this thought pattern, I know that if someone pitches me an idea or if I'm reading about an idea, and the primary reason for this idea of being attractive is some of the parts, well it immediately goes into the too hard pile and I will immediately take a pass. So that's all I have for you today. If you want to interact with me on Twitter, please follow me Rational mrks or on LinkedIn under Kyle grief if you enjoy my episodes, please feel free to let me know how I can make your listening experience even better. Thanks for tuning in. Bye for now.

A (67:39)

Thank you for listening to tip. Make sure to follow we study billionaires on your favorite podcast app and never.

B (67:46)

Miss out on episodes.

A (67:48)

To access our show notes, transcripts or courses, go to theinvestorspodcast.com this show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.