![]() The firm is particularly secretive about the drivers of its success, so digging deeper into that was one of the main goals of my visit. Yours truly recently visited the highly successful truck manufacturer PACCAR ( PCAR) for a tour of one of its primary facilities. ![]() Whether at a retail store accessible to the public or on the factory floor, on-site visits are a great way to evaluate a company's strategic execution and its positioning versus the competition. Thus, she was able to confirm that a trend was not emerging, which is just as valuable as uncovering a real trend, because management would be unlikely to be forthcoming with that sort of information. The investigation led her to conclude that switching costs for laboratory service were high enough that more-severe mistakes would be necessary for firms to consider switching vendors. In order to get the real story, she conducted a survey of several customers to see if they were considering other vendors. Our analyst who covers the largest operator of animal hospitals in the United States, VCA Antech ( WOOF) (great ticker, by the way), heard anecdotally that the quality of the firm's laboratory service might be slipping. As such, channel checks are a great way to test theories. Here's a quick rundown of some of our most recent activity:Ĭhannel checks are one of the most valuable forms of scuttlebutt research, as they can gather information about a company that is not screened by management. Morningstar analysts have recently conducted several forms of scuttlebutt research, and each time came away with insights that could not necessarily have been gleaned from the firm's annual report or latest conference call. While management may not like or openly agree with the conclusion (perhaps because fair disclosure laws prohibit it from doing so), only so much can be hidden from prying eyes. But investors can employ the "mosaic theory" to piece together bits of information found on these trips to come up with a new conclusion. Naturally, a firm may not always want certain information to be widely disseminated before a certain time, if ever. ![]() One can test a theory, for example, or detect a trend before it becomes apparent to the investing public and, thus, reflected in the stock price. Scuttlebutt can be enlightening for a variety of reasons. While reading a company's annual report, listening to its conference calls, and asking questions of investor relations are all excellent forms of research, they are by no means the only sources available to investors. This refers to the part of the investment research process in which one seeks out unconventional, sometimes subjective sources of information through such activities as store visits or phone calls to customers in order to unearth new information. In his timeless classic Common Stocks and Uncommon Profits, legendary investor Philip Fisher wrote about the value of "scuttlebutt" for evaluating companies.
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