A Real Life Example of the Philip Fisher Scuttlebutt Approach
One of the greatest investors of all time, a man named Philip Fisher, developed a famous approach to investing research known as the “scuttlebutt”. He said that there was a lot of knowledge about a company that could give insight into its investment merits if the investor could merely find it out and synthesize it into a somewhat accurate and cohesive view of an entire corporation.
Peter Lynch, arguably the greatest mutual fund manager in history, engaged in this when he was jumping on beds at La Quinta and drove around town checking out a new food chain known as Dunkin’ Donuts.
What is important for new investors to understand is that two reasonable persons could disagree on intrinsic value, even if they are both conservative and are presented with the same facts. That’s why Warren Buffett and Charlie Munger have been quick to remind people in the past that it is a range of values rather than a precise figure, parroting to no small degree great financial thinker Benjamin Graham. What you are trying to calculate is the present value of all of the money that the enterprise is going to earn from now until doomsday, discounted back at an appropriate rate of return.
Intelligent investing is about buying the greatest future profits at the lowest present price. Done well over time, and you one day wake up with tons of assets churning out cash, minting money for you and your family. Buffett described long-term processes like this in regard to weight gain: If you eat an extra piece of toast, you might not notice it.
Given enough time, if, on a net basis, you are consuming more calories than you are spending, it’s going to make a difference. This is similar to the process of wealth creation. Small differences over time turn out to huge gains in net worth. That's how men like Ronald Read, a janitor who earned minimum wage for most of his life, ended up with an $8,000,000 portfolio.