Warren Buffett is widely regarded as the one of the best investors of our generation.
As the chairman of Berkshire Hathaway, Buffett has produced a compounded annual gain of 19% in the company’s book value between 1965 and 2016. Shareholders who stuck with Buffett’s company through that period would have turned every dollar invested into almost two million dollars.
With results like that, it may appear that Buffett’s investing strategies are out of reach for the common investor. In reality, some of Buffett’s actions are actually quite accessible and easy to follow.
The Oracle of Omaha speaks
In an interview that took place earlier this week, Buffett talked about a method he learnt from the late investor Philip Fisher: :
“And he [referring to Fisher] talks about something called the scuttlebutt method, which made a big impression on me at the time.
But I used it a lot, which is essentially going out and finding out as much as you can about how people feel about the products that they … it’s just asking questions, basically.”
In essence, Buffett believes that scuttlebutt can help investors understand why a company’s product or service is popular and why customers like it. And scuttlebutt can be as simple as asking for the opinion of the people around you.
For instance, would your friend prefer to have a curry puff from Old Chang Kee (SGX: 5ML) or a pork floss bun from BreadTalk Group Limited (SGX: 5DA) for a tea break snack? Why would one delicacy be chosen over the other? Is the product’s brand strong enough to attract repeat purchases? Collect enough responses and you, as an investor, may be able to gain a better view of a company’s products or services and thus, its future business prospects.
Simple questions like that may also reveal insights that go beyond what is on the financial statements of a company. Or as Buffett would put it (emphasis is mine):
“And I don’t know what goes on inside their research labs or anything of the sort. I do know what goes on in their customers’ minds because I spend a lot of time talking to ’em.”
Buffett believes that investors should focus on finding companies that have the potential to be worth more over the next decade or longer. Scuttlebutt is one way we can gain insight on the companies that are around us and something that everyone would be able to do.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Berkshire Hathaway.