In this article, I want to share a very interesting type of “study” that has actually proven really it’s worth in the past. Also, this is a very practical and can be used by us retail investors very well.
Disclaimer: This is complimentary to Fundamental and Technical Analysis. Fully relying on it is strongly discouraged.
Okay, so let’s understand what this is all about…
I’ll be talking about some thing called Scuttle-Butt Investing. Pretty cool name right!
So “Scuttlebutt” is a term that generally refers to rumors or gossip. The origin of the term is related to sailing. In earlier days, water for consumption on sailing ships was typically stored in a scuttled butt – a butt (barrel) which had to be scuttled by making a hole in it so the water could be withdrawn. Since sailors exchanged gossip when they gathered at the Scuttlebutt to drink water, scuttlebutt became slang for gossip or rumors. It’s not that far off from the more modern office equivalent – “watercooler talk”.
Let’s come back to stock markets now…
As retail investors, we are mostly on the disadvantageous side as compared to the big investors. This is because the big investors have the ability to talk directly to a company’s management and get a ground reality check from the top management itself. But we small investors are left with very little option to reach the management except for some AGMs or other public meetings (which unfortunately is far away from the ground reality).
The interesting thing is that although we cannot meet top-level management, we can gain a lot of insight by practicing “Scuttle-Butt” investing – by talking to the employees of the said companies.
Here’s a story of “How I got amazing insights of Aviation sector by talking to a Cabin crew?”.
A few months ago… I was analyzing the commercial aviation sector. Incidentally, I happened to meet a friend who was working as a cabin crew member of an International Airline. We started with some “How are you’s” and slowly our conversation headed towards the Airline Industry (ya, this happens to me a lot. If I’m analyzing a particular industry, my mind just rotates around that only).
Anyway, as our conversation shifted from greetings to our professional lives, I asked her about her opinions on the airline companies in India.
She replied by comparing the 3 major Airline companies in India – IndiGo, SpiceJet, and Kingfisher.
She gave me crucial insights on how the employees of each airline work which essentially is the bedrock of a company.
So, first she started off talking about Kingfisher – She told me that Kingfisher employees were not very disciplined at work. Kingfisher lacked the ability to handle their employees in the sense that, management and employee relations were very casual and unprofessional. This led to their employees not working hard and easily avoiding it whenever possible. Employees were generally quite happy with Kingfisher because they had a lot of freedom.
But, Kingfisher was too aggressive, they wanted to grow at a fast pace. They even bought other airlines and quickly wanted to scale up and enter international operations just after launching. But the reality was that they couldn’t discipline their employees because of the inefficient management.
The dual combination of fast growth and undisciplined employees eventually led to the bankruptcy of Kingfisher.
SpiceJet – She told me that SpiceJet employees are also not very disciplined at their work. Their management and employee relations were also casual. That’s why you must have noticed that SpiceJet onboard service isn’t the best (because I clearly have). Their employees are fairly happy because they don’t have much work pressure and SpiceJet isn’t very strict with their employees.
But, SpiceJet is not very aggressive in expansion. They are very slow at expanding and growing. They mostly focus on their present operations. That’s why even if SpiceJet employees are not very efficient, they will continue to be a stable company. But the bad point is that SpiceJet will not grow very fast.
People may say SpiceJet’s customer service isn’t at par with the others, but they will still continue to use their services because it’s a stable company.
IndiGo – Unlike the other Airlines mentioned above, IndiGo’s employees are very diligent. They can’t be casual with their employers. Management personals are very strict and work with clear systems. Cabin crew members have to follow a defined code of conduct and provide best service on-time, accurately. They have exhaustive working hours, doing their best to offer on-time service.
IndiGo is aggressive at expanding their business. But their expansion is reasonable and not too aggressive like Kingfisher. Also, the workforce is very competent and sometimes even works overtime (which shows the dedication towards their work) to manage/control the aggressive expansion of capacity.
IndiGo employees aren’t casual as the above-mentioned airlines, but most of the staff still wants to continue working with Indigo because they provide good perks and salaries to their employees. Also, employees are confident that Indigo’s business will continue to do well.
After many months I can clearly see what she meant when she said IndiGo is clearly a better company:
Overall the share price of IndiGo is performing clearly much better than SpiceJet on a consistent basis.
Now after this conversation and looking at the price chart, I realized that this Scuttle-Butt can give us some really great insights to us investors before investing money in a company. We know the importance of customer satisfaction but even more important than that for is employee satisfaction (I have realized this now). The employees know everything, the internal and external standing of the company.
At the end, the price chart might not show the clear correlation between company’s real performance and stock performance. But in long term the price will always and ALWAYS follow the long term performance of the company. Period.
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