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Scuttlebutt


Guest roark33
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Guest roark33

I am curious what your best strategies for scuttlebutt are?  Part of me has always wanted to merely stick to the filings and not stray to far outside of what I can read from the specific company, competitors and industry.  But the other part of me wonders if I am sometimes missing something. 

 

I have always thought of starting a sort of conference call type situation where an investment board such as this could find a industry source that we could ping with questions. 

 

I have been thinking about this with respect to two companies.  Barrett Business Services and Examworks.  Both companies are in non-consumer facing industries (PEO and IME--Independent Medical Examinations).  It would be great to know the pricing situation with BBSI in the industry.  They are growing very rapidly and I would be curious to understand if they are underpricing their insurance portion of their business (they recently disclosed a large reserve charge). 

 

Examworks is a roll-up that I passed on the long side a few years back (because I didn't understand the industry enough) and now am looking at on the short side because of the debt, roll-ups, heavy insider selling and lack of operating leverage in the business model.  It would be great to get a feeling for their place in the IME market.  However, there are no other publicly traded IME companies and so comparison is very difficult. 

 

These are just two examples where industry information would be helpful beyond the four corners of the filings.  What are your thoughts?

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Well you seem to be pretty damn good at reading reports/investing in general judging from what you picked up on ESI latest 10Q (unless it's a different roark?) and overall quality of comments, so I guess it would make sense to look at this as the next weapon to add in your arsenal?

 

Short of forking over some material $ for industry reports of questionable quality, one would (often) need to go full spy mode to obtain the required information. Sounds kind of exciting. I'm just in the process of getting a grip on the nuts and bolts so personally that's not something I envision doing anytime soon and obviously I have nothing to contribute re: scuttlebutt strategy, but it seems there's nothing for you to lose in the spot you're in. Only downside is you'd have to step out of your comfort zone a little, something every big boy has to do once in a while.

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For consumer-esque products (i.e. easily understandable) I call retailers/distributors and simply pretend I'm a prospective customer and see what say. Message boards about a particular company or industry that are not investment related are good as well, but as with almost everything online needs to be taken with initial skepticism. I like to see if I can find videos of the CEO as well. Just to get a vibe with his personality. Industry reports are sometimes useful, I think it depends on the industry. Reports on high-tech stuff I haven't really found useful (apparently everything is "disruptive" and "game changing"), same with some of the medical stuff I've tried to read. Although I am clueless in the medical field so maybe it's me. If I think of some others I'll post as well.

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Attend annual meetings or conferences and befriend attendees who seem to have their acts together.  Then connect with them and their friends, employees whoever knows their stuff.

 

Take them to lunch, don't call.  Over lunch or a beer you'll find out more than anyone would ever share on a phone.  You will find out a lot even if someone never says anything.

 

No spy mode required, just talk to people and ask questions.  If you ask direct questions 90% of the time you receive direct responses.

 

I have a friend who was a bank examiner and then bank exec.  Great guy to talk to over lunch.  His DD is this.  He calls a potential bank investment and pretends to be a new resident and asking "why should I choose your bank?"  he'll then call later in the week and pretend he needs a loan.  He said most of what he needs to know about the quality of the business can be discerned with those two questions.

 

I've found that talking to people adds an incredible richness that is lost in filings.  I'm not sure what investment edge can be gained, but I know that I've enjoyed investing more knowing "the full story".  So many times there are things that are speculated upon based on filings, but a simple question to the right person resolves the issue.  To the right person there is no mystery, the answer is obvious.

 

How can I sum this up, network, network, network.  Just like you would to get a job.  Take people to lunch and coffee, ask if they know people etc.  In no time you'll have a giant network that you can talk to about anything.

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