The Education of Warren Buffett 19he explained, is to uncover as much about a company as possible from
those individuals who are familiar with the company. Fisher admitted
this was a catchall inquiry that he called “scuttlebutt.” Today we might
call it the business grapevine. If handled properly, Fisher claimed, scut-
tlebutt could provide the investor with substantial clues to identify out-
standing investments.
Fisher’s scuttlebutt investigation led him to interview as many
sources as possible. He talked with customers and vendors. He sought
out former employees as well as consultants who had worked for the
company. He contacted research scientists in universities, government
employees, and trade association executives. He also interviewed com-
petitors. Although executives may sometimes hesitate to disclose too
much about their own company, Fisher found that they never lack an
opinion about their competitors.
Most investors are unwilling to commit the time and energy Fisher
felt was necessary for understanding a company. Developing a scuttle-
butt network and arranging interviews are time consuming; replicating
the scuttlebutt process for each company under consideration can be
exhausting. Fisher found a simple way to reduce his workload—he re-
duced the number of companies he owned. He always said he would
rather own a few outstanding companies than a large number of average
businesses. Generally, his portfolios included fewer than ten companies,
and often three to four companies represented 75 percent of his entire
equity portfolio.
Fisher believed that, to be successful, investors needed to do just a few
things well. One was investing only in companies that were within their
circle of competence. Fisher himself made that mistake in the beginning.
“I began investing outside the industries which I believed I thoroughly
understood, in completely different spheres of activity; situations where I
did not have comparable background knowledge.”^8
JOHN BURR WILLIAMS
John Burr Williams graduated from Harvard University in 1923 and
went on to Harvard Business School, where he got his f irst taste of eco-
nomic forecasting and security analysis. After Harvard, he worked as a
security analyst at two well-known Wall Street f irms. He was there