Lesson 5 of 7
Scuttlebutt: beyond the filings
Ask customers, suppliers, competitors and former employees what a filing cannot say, and stay inside the rules on material information.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
Who writes thisEditorial processLinkedIn (opens in a new tab)X (opens in a new tab)
In one minute
- Scuttlebutt is asking people around a company, customers, suppliers, competitors, former employees, what its own filings cannot say.
- A short plan beats an open conversation: pick two or three questions tied to a specific gap in what you already read.
- Regulation FD stops a company telling some listeners material news before the market, and trading on material non-public information obtained through a breach of duty is insider trading under Rule 10b-5.
Scuttlebutt is the half of research that never reaches a filing. Fisher gathered it by asking the people around a business what its own accounts cannot say, before ever meeting its executives.
Who to ask, and what to ask each
- A customer: would you switch to a competitor tomorrow, and why haven't you?
- A supplier: has an order size or a payment pattern changed this year.
- A competitor: what do they say this company does better, or worse, than they do.
- A former employee: why did you leave, then check the answer against a second one.
What scuttlebutt answers that a filing cannot
A filing can show revenue growth and a margin against the rest of an industry. It cannot show whether a product wins on merit, whether the sales force is any good, or whether management stays candid in a bad year the way it does in a good one. Those questions are gathered, not computed.
A plan beats a conversation
Walk in with two or three questions tied to a specific gap in what you already read, not an open invitation to talk. A customer can answer whether they would switch. A supplier can answer whether an order pattern moved this year. Fewer, sharper questions produce a usable answer faster than a general one does.
Cross-check before you trust it
A single former employee may carry a grievance from how they left, and Fisher's own caution is to check one account against a second before either is trusted. The same rule applies to a competitor's account of a rival: it is an opinion with an interest behind it, useful once weighed against something else. Fisher's condition for any of this is stricter still: promise, and keep, that a source is never named.
The line Regulation FD draws
Regulation FD, adopted in 2000, bars a public company from selectively disclosing material non-public information to one listener ahead of the market at large. Scuttlebutt stays inside that line by asking what people experienced, a wait time, a returned product, a sales pitch, rather than asking anyone inside the company to share undisclosed results or plans.
The rule that binds you, not the company
Regulation FD binds the company, not you. Your own line is insider-trading law: undisclosed results passed on by an employee, current or former, in breach of a duty are not scuttlebutt. A supplier's own experience of a slower order book is fair ground; a company insider's advance look at a quarter's results is not, however it is offered.
Check yourself
What does scuttlebutt add that a filing generally cannot?
- A more precise revenue forecast for next year
- Direct accounts from customers, suppliers, competitors and former employees
- A restated version of the company's own accounting figures
Show the answer
Answer: B.
Scuttlebutt is asking around a company's own world. It gathers evidence, it does not recompute anything already filed.Regulation FD, adopted in 2000, binds
- Any investor who trades on undisclosed information
- The company itself, not the investor reading its filings
- Former employees discussing a past employer at all
Show the answer
Answer: B.
Regulation FD requires that a company's material information reach the whole market at once. It says nothing about you; your own limit is insider-trading law under Rule 10b-5.Fisher's caution about a single former employee's account is to
- Ignore it, since a former employee is never a reliable source
- Check it against a second account before trusting either one
- Treat it as equal in weight to the filed statements
Show the answer
Answer: B.
One account can carry a grievance from how someone left. A second account is the cheapest check available.Sources
- Fisher, Common Stocks and Uncommon Profits, 1958, chapter 2: what scuttlebutt can do, and the promise of anonymity it depends on.
- Regulation FD, 2000: no selective disclosure of material non-public information.
- Securities Exchange Act of 1934, section 10(b), and Rule 10b-5: trading on material non-public information obtained through a breach of duty is insider trading.
What this leaves out
- The conversations and facts in the worked example are illustrative, not any named company's.
- Scuttlebutt is not reproducible the way a filed figure is. Two investors asking the same questions can hear different answers.
- Fisher himself said most investors are not in a position to do much of this directly.
- Nothing here is advice about any security, and nothing here is an invitation to seek material non-public information.