Warren Buffett Series #4 – The scuttlebutt method – how to use it to analyze a business

You really want to start with a business where you think the economics are good, where they look like a seven-footer, and then you go out with a scuttlebutt approach to possibly reject your original hypothesis. Or maybe you confirm it.

Scuttlebutt method: You can’t do too much of scuttlebutt. The general premise of why you are interested in something should be 80 percent of it. You don’t want to be chasing down every idea using the scuttlebutt method.

So you must have a strong presumption. You should be like a basketball coach who runs into a seven-footer on the street. You are interested to start with. Now you have to find out if you can keep him in school, if he’s coordinated, … That’s the scuttlebutt aspect of it.

As you acquire knowledge about businesses, first do some reading about them, then get out and talk to competitors, customers, suppliers, ex-employees, and current employees, … You will learn a lot. But it should be the last 20 percent or 10 percent.

You really want to start with a business where you think the economics are good, where they look like a seven-footer, and then you go out with a scuttlebutt approach to possibly reject your original hypothesis. Or maybe you confirm it,.

About me and why this series:
I got a life-changing experience studying Warren Buffett’s annual letters in 2013 after 10 years of speculating, market timing, charting, and forecasting. I started investing in the Vietnamese stock market in 2015 with what I saved from my engineering job. In 2018, I decided to study Warren Buffett’s investing again by going through all of available Berkshire Hathaway’s annual meeting videos. It has been another life-changing experience. Warren Buffett’s teaching is a real germ and yet not many people replicate. Hence, I am committed to share what I learned.

You can subscribe to my blog to follow the series of what Warren Buffett has been teaching in his annual meetings. I attempted to modify but keep as much as possible what he spoke.

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Warren Buffett series #3 – What teenagers can do to prepare to become an investor?

If you are interested in investments, you should take the accounting courses. You should do a lot of reading and get as much business experience as possible.

If you are interested in business, you ought to learn all the accounting you can by the time you are in your early 20s.
Accounting is the language of business. It doesn’t mean it’s a perfect language. You have to know the limitations of that language as well as all aspects of it. 

You should work at a number of businesses – in term of part-time employment or anything else. There’s nothing like seeing how business operates to build your judgement in the future about businesses.
When you understand what kind of things are competitive and what kind of things are less competitive and why that works that way, all of that adds to your knowledge.

You should do a lot of reading.

If you are interested in investments, you should take the accounting courses. You should do a lot of reading and get as much business experience as possible.

You should talk business people with people that are in business to find out what they think makes their operation tick or where they have problems and why. 

If you understand business, you understand investment. Investments are simply business decisions in terms of capital allocation.

Any dollar you save before you get out and start having a family is probably worth $10 later on simply because you save it. The time to save is young. You’ll never have a better time to save than really free formation of a family. 

Work for yourself first and put the money aside. I was able to save everything I made in my teens and those dollars got magnified quite a bit. 

About me and why this series:
I got a life-changing experience studying Warren Buffett’s annual letters in 2013 after 10 years of speculating, market timing, charting, and forecasting. I started investing in the Vietnamese stock market in 2015 with what I saved from my engineering job. In 2018, I decided to study Warren Buffett’s investing again by going through all of available Berkshire Hathaway’s annual meeting videos. It has been another life-changing experience. Warren Buffett’s teaching is a real germ and yet not many people replicate. Hence, I am committed to share what I learned.

You can subscribe to my blog to follow the series of what Warren Buffett has been teaching in his annual meetings. I attempted to modify but keep as much as possible what he spoke.

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Warren Buffett Series #2 – How to be a better investor and a better manager

The checklist that goes through our mind is simple, not complicated. Knowing what you don’t know is important and sometimes that’s not easy. Knowing the future is impossible in many cases, difficult in others, and sometimes relatively easy. We are looking for the ones that are easy.

What to look for before you commit to an investment? What kind of checklist should you go through?
The following is what Warren Buffett answered to similar questions.

The investment checklist is the checklist to look at a business:

  1. We look at whether we can understand the business. That means they sell a product that we think we understand or we understand the nature of the competition, what could go wrong with it overtime.
  2. Once we find that business that we understand, we try to figure out whether the economics of it means the earning power over the next five or 10 or 15 years is likely to be good and getting better or poor and getting worse. 
  3. Then we try to decide whether we are getting in with some people that we feel comfortable being in with.
  4. Then we try to decide what an appropriate price for what we’ve seen up to that point is.

The checklist that goes through our mind is simple, not complicated. Knowing what you don’t know is important and sometimes that’s not easy. Knowing the future is impossible in many cases, difficult in others, and sometimes relatively easy. We are looking for the ones that are easy. If you think of buying a service station or a dry cleaning service to invest your life savings in, you’d think about the same sort of things. 

About me and why this series:
I got a life-changing experience studying Warren Buffett’s annual letters in 2013 after 10 years of speculating, market timing, charting, and forecasting. I started investing in the Vietnamese stock market in 2015 with what I saved from my engineering job. In 2018, I decided to study Warren Buffett’s investing again by going through all of available Berkshire Hathaway’s annual meeting videos. It has been another life-changing experience. Warren Buffett’s teaching is a real germ and yet not many people replicate. Hence, I am committed to share what I learned.

You can subscribe to my blog to follow the series of what Warren Buffett has been teaching in his annual meetings. I attempted to modify but keep as much as possible what he spoke.

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Warren Buffett series #1 – When you know you are ready to manage other people’s money?

You start very small and get an audited record.
Once you get the confidence that if your parents come to you and give you all their money, you will invest for them. Then you are ready.

When you know you are ready to manage other people’s money?

Warren would not have formed his first partnership if he thought there was any chance that he would lose the money.

What he was worried about was not how he would behave, but how his partners would behave. So he invited them all to a dinner and showed the partnership agreement form.
He told them: “Here is the ground rules as to what I think I can and how I want to be judged, and if you are in sync with me, I want to manage your money, because I won’t worry about the fact that you will panic if the market goes down or somebody tells you to do something different. So we have to be one the same page. And if we’re on the same page, then I’m not worried about managing your money. And if we aren’t on the same page, I don’t want to manage your money, because you may be disappointed when I think that things are even better to be investing and so on.”

You don’t want to manage people’s money until you have a vehicle and can reach people who are in sync with you. You ought to have your own ground rules.
It’s enormously important that you don’t take people that have expectations of you that you can’t meet.
It might mean that you turn down a lot of people.
You start very small and get an audited record. 
Once you get the confidence that if your parents come to you and give you all their money, you will invest for them. Then you are ready.

About me and why this series:
I got a life-changing experience studying Warren Buffett’s annual letters in 2013 after 10 years of speculating, market timing, charting, and forecasting. I started investing in the Vietnamese stock market in 2015 with what I saved from my engineering job. In 2018, I decided to study Warren Buffett’s investing again by going through all of available Berkshire Hathaway’s annual meeting videos. It has been another life-changing experience. Warren Buffett’s teaching is a real germ and yet not many people replicate. Hence, I am committed to share what I learned.

You can subscribe to my blog to follow the series of what Warren Buffett has been teaching in his annual meetings. I attempted to modify but keep as much as possible what he spoke.

Enter your email to subscribe to notifications from this site

Join 11,548 other followers



Superinvestors or super value investors

1. Think of yourself as owning a business and not buying something that wiggles around in price.
2. Your attitude toward the market.
3. The margin of safety. Don’t try to drive a 9800 pound truck over a bridge that says “Capacity: 10000 pounds.” Go down the road and find one that says “Capacity: 15000 pounds.”

Graham and Dodd’s approach: look for values with a significant margin of safety


The common intellectual theme of the investors who use Graham and Dodd’s approach is: they search for discrepancies between the value of a business and the price of small pieces of that business in the market.Those investors don’t use beta, capm, covariances in returns, volume, price movement, charts… They even have difficulty in defining them. They simply focus on two variables: price and value.


Walter Schloss with no college education working for Graham’s firm knows how to identify securities that sell at a conceivably less than their value to a private owner. He compounded money from 1956 to 1984 at 21.3%.


Tom Knapp working for Graham compounded at 20% from 1968 to 1983. 
Warren Buffett compounded at 29.5% from 1957 to 1969.


Bill Ruane who took Graham’s course at Columbia compounded with at 18.2% from 1970 to 1984.


Charlie Munger, who was a lawyer and changed to investing career after talking to Warren, compounded at 19.8% from 1962 to 1975.


Rich Guerin, who was an IBM salesman and turned into investing after talking to Munger, compounded at 32.9% from 1965 to 1983.The idea of value investing, buying a dollar for 40 cents, either grabs you instantly or never. Rich Guerin immediately understood the value approach.


Stan Perlmeter, who was in advertising and in the same building as Warren Buffett in Omaha, understood the value approach instantly, left his advertising career, compounded money at 23% from 1965 to 1983.


The above investors worked independently and didn’t own the same thing as others. They bought a stock because they would get more for their money that what they paid for. They didn’t look at quarterly earnings, projections, next year’s earnings, investment researches, price momentum, volume, or which day of the week was. They simply asked: “What is the business worth?”


They follow Graham’s principles:

  1. Think of yourself as owning a business and not buying something that wiggles around in price.
  2. Your attitude toward the market.
  3. The margin of safety. Don’t try to drive a 9800 pound truck over a bridge that says “Capacity: 10000 pounds.” Go down the road and find one that says “Capacity: 15000 pounds.”