Alpha Ideas

The Book ‘The Sleuth Investor’ is written by Avner Mandelman who is a fund manager based out of Canada.

The first line of the Book sets the tone for what is to follow:

“To make money in the stock market, it’s not enough to rely on public information.”

Then how to get non-public information in a legal way that doesn’t flout insider trading/compliance rules etc?

The Book sets out to explain how one can get information from the following sources:

• People
  • Employees
  • Customers
  • Suppliers
  • Competitors
• Product
• Place-Factory/Office etc

If the information has the “TIE” criteria, then you could have possibly hit the jackpot.

The “TIE” criteria is that information so obtained is:

• True
• Important
• Exclusive

This kind of approach to investing is what PE firms and large funds do on a routine basis and was popularised by Fischer as “Scuttlebutt”

But yet for an ordinary investor with limited funds, there are lots of lessons too.Many times we end up buying knowing very little of what we have bought…the Companies and the people behind the Stock Symbol.

For example,how many times have you bought a stock without using its products or even seeing it’s products?

The Book explains that Stock Investing goes beyond just arm chair analysis using annual reports,financial statements,exchange filings etc

One has to go beyond the Computer Screen and consider investing as an “investigatory field craft”

In the Indian context, this is very much true for small caps and SMEs.Many times they turn out as frauds which can only be detected by field work, not by financials.

While the Book gives North American examples, there are many examples in the India where a little bit of leg work have saved people bundles of money. Some instances being:

• Employees say that they don’t get salaries on time
• Customers say that the Co is willing to do business in cash
• The Promoter’s kid and heir apparent is a drug addict
• Distributor denies being associated with the Company
• Retailers don’t stock the Company’s Products
• You send a Sales Inquiry and nobody responds

and so on and on.

I would recommend this Book to get a different way to look at investing.