Scuttlebutt and its dramatic effect on long-term investing | John Wilson | EP10

July 4, 2018 Print

John Wilson, analyst on Mawer’s global small cap equity strategy, defines scuttlebutt and its competitive advantage for long-term investors.

Highlights include:

  • Scuttlebutt’s (and mosaic theory’s) valued place in Mawer’s investment process
  • From Bogota to Oslo: the dramatic new places scuttlebutt can take us
  • A 180 degree turn: the dramatic effects scuttlebutt can have on an investment thesis

 



Your host

cam porthole3 Cameron Webster, CFA, MBA
Institutional Portfolio Manager

Cam likes to think and act long-term. He has broad experience in the capital markets over his 20+ years as an analyst, portfolio manager, and client service professional. When not thinking about markets and investing, Cam trains and participates in other “boring” and disciplined activities such as ultra-endurance races—marathon, triathlon, one-day 300+km bike rides.

Shownotes

Start – 0:58

1:44 – What is scuttlebutt?

  • Mosaic theory: the cobbling together of information to corroborate what management teams are saying in order to make a more informed decision.

2:45 – How scuttlebutt helps investors differentiate between different shades of grey.

  • Example: The discrepancy found doing scuttlebutt between the importance an Australian accounting software provider’s management team put on having their end-user accountants on the same software. The accountants had a slightly different story.

5:11 – How to get people to open up to you

  • Don’t pretend to be someone that you’re not
  • Always maintain a high degree of integrity

6:55 – Scuttlebutt is not commonly used in the investing world because it demands the investment of time. For long-term investors, the data gathered is worth this investment.

8:34 – Always on my mind: John can’t stop doing scuttlebutt, even in his personal life!

Key scuttlebutt learnings:

  • Price is not always a customer’s main priority—there can be search costs, switching costs, or trust factors that trump price.

11:10 – A sharing culture: using M42 database to share scuttlebutt learnings with the entire research team

11:58 – Scuttlebutt can cause a dramatic shift in direction: From Bogota to Oslo

  • Example: In doing scuttlebutt on a Columbian stock exchange, the team reached out to the Oslo stock exchange and found they were much more impressed with the latter. Oslo Børs is still a holding in the global small cap strategy years later.

13:12 – How the Mawer team weighs the information they learn from scuttlebutt

  • Bayes Theorem: Not all information gained in terms of updating your hypothesis is the same. The rarer the information is, the better.
  • Example: If you ask CEOs who they respect in their industries, they are not biased to sing the accolades of their competitors: the answers gleaned is rare and therefore, we weigh it more heavily than other information.

15:30 – When scuttlebutt can change our thesis completely and we walk away from an investment

17:24 – Rapid Fire Round: Get to know John Wilson better

  • What’s the hardest part about learning to ski?
  • Relating learning to ski to investing
  • What John is reading (outside investing): The Effective Engineer
  • What John likes best about Toronto

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