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(Adviser Q&A)Tj
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(Buys Among Buyback Stocks )Tj
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(Matthew Schifrin, Forbes.com, )Tj
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(11.05.01, 3:00 PM ET)Tj
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( )Tj
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(David Fried)Tj
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(, editor in chief of Pacific Palisades, Calif.-based )Tj
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(The Buyback Letter)Tj
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(, has been tracking and investing in the )Tj
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(stocks of companies that buy in their own shares for the last six years.\
Fried is convinced that the stocks of these )Tj
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(companies outperform their peers. His record, according to )Tj
0 0.2 0.6 rg
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(The Hulbert Financial Digest)Tj
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(, seems to bear this out. According )Tj
0 -1.384 TD
(to HFD, Fried's Buyback Index portfolio has gained 131% since inception \
in 1997, beating all other stock letters on a risk-)Tj
0 -1.2 TD
(adjusted basis. His value-oriented picks have held up well during the re\
cent downturn: Year to date, this Index portfolio is )Tj
0 -1.2 TD
(down 1%. Ironically Fried's Buyback High Tech Index, is up 11% since its\
inception in February 2000, compared to a 58% )Tj
0 -1.2 TD
(drop in the Nasdaq Composite since that time. Fried is a Cornell graduat\
e who owned a company in the garment industry )Tj
0 -1.2 TD
(before starting the Buyback Letter in 1997. He also uses his strategy to\
manage private accounts in buyback stocks )Tj
0 -1.201 TD
(through his investment advisory firm, )Tj
/TT1 1 Tf
(Fried Asset Management)Tj
/TT2 1 Tf
(.)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
/TT1 1 Tf
0 -1.073 TD
(Forbes: How did you come up with the idea for a letter devoted solely to\
companies that are buying back their )Tj
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(shares?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(DF: In 1994, Mark Hulbert wrote a column for )Tj
/TT2 1 Tf
(Forbes)Tj
/TT0 1 Tf
( where he talked about an indicator that worked: how companies that )Tj
0 -1.201 TD
(have announced stock repurchases had outperformed the market. His resear\
ch was cited from the )Tj
/TT2 1 Tf
(Journal of Finance)Tj
/TT0 1 Tf
( and )Tj
0 -1.201 TD
(that research said that there was a market underreaction to open market \
share repurchases. In that same article, he talked )Tj
0 -1.2 TD
(about how companies that issued stock underperformed the market. So from\
that I developed what I call my share supply )Tj
0 -1.2 TD
(theory, which simply states that an increase in shares is bad for shareh\
olders and a decrease in shares is good for )Tj
0 -1.2 TD
(shareholders. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
0 -1.1 TD
(That's pretty straightforward...)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Because, in the aggregate, the captains of industry who run our companie\
s know when to hold 'em and when to fold 'em. )Tj
0 -1.2 TD
(When their shares are overextended or overvalued, they can be counted on\
to issue shares as a source of cheap money )Tj
0 -1.2 TD
(for future growth. And when their shares are undervalued given the futur\
e earnings prospects of the company, whether that )Tj
0 -1.2 TD
(be internal growth or acquisitions or products or whatever, they buy bac\
k stock. What I have done is taken the academic )Tj
0 -1.2 TD
(research to the next step, focusing on companies that actually do repurc\
hase their stocks. Of course, there's a lot of white )Tj
T*
(noise in buybacks. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(What kind of white noise?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(The white noise that I'm talking about is the main criticism of buybacks\
. They don't happen. Companies announce them and )Tj
0 -1.2 TD
(they don't happen. Another criticism is that companies buy back shares, \
but they're only offsetting dilution of options and )Tj
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(things like that. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(So how do you cut through the white noise?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(We look at the actual share count after each quarter and look for reduct\
ion. The number is published in the quarterly )Tj
0 -1.2 TD
(statement. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(What are your criteria for choosing a good buyback candidate for your po\
rtfolios?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Well, we've been quite successful focusing on companies that have a nega\
tive year-over-year share count of at least 3%. )Tj
0 -1.2 TD
(After we find stocks that fall into this category, we rank them accordin\
g to other value-oriented fundamental criteria. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(Let's talk about one of your most popular portfolios, the Buyback Dogs.)Tj
/TT0 1 Tf
( )Tj
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( )Tj
0 -1.1 TD
(The thesis on that is as follows. Most investors are familiar with that,\
the Dogs of the Dow, which says that the ten Dow )Tj
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(stocks with the highest yield will outperform the market and the Dow Jon\
es and so on. And since I'm a buyback practitioner, )Tj
0 -1.2 TD
(I have taken the ten Dow stocks that buy back the most shares, that have\
the biggest year-over-year reduction in shares. )Tj
T*
(From those ten companies, we select five. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
0 -1.073 TD
(So once they are screened for buybacks, you look more closely at the fun\
damentals, things like earnings and book )Tj
0 -1.227 TD
(value, price-to-earnings ratios?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Right. It is absolutely a value-oriented approach. It is not a momentum \
approach. In fact, I would go so far as to say that, in )Tj
0 -1.2 TD
(some circumstances, you could argue it's almost a negative-momentum appr\
oach because some of these companies have )Tj
T*
(been beaten up and are out of favor. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(And how has your Dogs of the Dow portfolio done?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(We introduced it in March of 1997, and since then it has outperformed th\
e Dow and the S&P by about two-and-a-half times. )Tj
0 -1.2 TD
(Since then, we are up 78.44% versus 32% for the S&P. Two stocks we own i\
n that portfolio are Boeing, which has been a )Tj
T*
(heavy buyer of its own stock, and [Hewlett-Packard], which has recently \
picked up its share-repurchase program after its )Tj
T*
(stock sunk after announcing the Compaq deal. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(You have another portfolio called the Buyback Index?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Yes, this is 20 stocks, and we rerun our screens quarterly and it was al\
so incepted on March 5, 1997. These companies )Tj
0 -1.2 TD
(typically have at least $1 billion in market cap. This has been our best\
since inception, up 131%. Some of its holdings )Tj
T*
(include Sara Lee, Bear Stearns and GTECH Holdings. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(What about year to date? It's been a tough year for everybody.)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Year to date, that portfolio is down 1.2%. )Tj
T*
( )Tj
/TT1 1 Tf
T*
(What about your Buyback High Tech Index?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(That one's very interesting because our starting it probably signaled th\
e end of the bull market in high technology. We )Tj
0 -1.2 TD
(started that on Dec. 3, 2000, and by the end of last month, our portfoli\
o is up 10.93% versus a decline of 58.74% for the )Tj
T*
(Nasdaq. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(That's amazing. And what do you attribute that to?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(You have to go back to my initial theory, the share supply theory. This \
is always invested in five stocks that management )Tj
0 -1.2 TD
(has been repurchasing shares. In the high-tech portfolio, we have screen\
ed in telecommunications, computers and )Tj
T*
(software, electronics and semiconductors. Two examples from that portfol\
io are Sykes Enterprises and Paxar. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(And it's only five stocks?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Yes, the goal is that by putting different indexes together in different\
sectors, the investors can achieve a diversified )Tj
0 -1.2 TD
(portfolio without purchasing tremendous numbers of stocks. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(I noticed that you have a Buyback Stock Pickers portfolio. What are you \
focusing on now?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(AutoZone is a buyback stock that has had a nice run, but that I think wi\
ll continue. [It has] bought back double-digit amounts )Tj
0 -1.2 TD
(of shares, over 10%, and [it continues] to buy back, and [its] operation\
s look very, very solid. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(It runs auto-parts stores.)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Yes. And we would expect them to do well in this slow economy. )Tj
T*
( )Tj
/TT1 1 Tf
0 -1.073 TD
(What kinds of overall trends have you been seeing lately in terms of ove\
rall corporate buybacks? I assume that )Tj
0 -1.2 TD
(during the recent market bubble, as stock prices became inflated, buybac\
k activity waned? )Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Actually, not true. You weren't seeing a lot of buybacks in the dot-com \
area, but you were seeing buybacks in a lot of other )Tj
0 -1.2 TD
(areas because, during that time, if you weren't a dot-com or a Sun Micro\
systems or a Microsoft, you were really shunned by )Tj
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(the market. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(So there were a lot of buybacks during the tech runup?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Yes, there were a lot of buybacks in '98 to '99, but not in those sector\
s. )Tj
T*
( )Tj
/TT1 1 Tf
0 -1.073 TD
(What are you finding today? Is it changed now that the market's come bac\
k? Is there more of a broad-based trend )Tj
0 -1.227 TD
(in share repurchase?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(You saw a big increase in buyback activity after Sept. 11, in part becau\
se stocks were cheaper and in part because of the )Tj
0 -1.2 TD
(relaxed rules by the [Securities and Exchange Commission]. The SEC relax\
ed buyback rules for public companies by )Tj
T*
(making it easier for them to trade their own stocks for approximately a \
month after trading reopened. They did it two ways. )Tj
T*
(The guidelines say that the companies shouldn't buy back more than 25% o\
f the prior month's trading volume in a given )Tj
T*
(day. That was waived and instead the companies could buy 100%. The other\
thing that was waived was that typically a )Tj
T*
(company can't open or close trading, meaning companies can't buy or sell\
their own shares in the first and last half-hour. )Tj
T*
(The rationale for that is that the SEC doesn't want companies making mar\
kets in their own stocks, which is very )Tj
T*
(understandable. That was waived for approximately four weeks after tradi\
ng reopened. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(And the result was that you had a surge of buybacks?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Well, you had a lot of buyback announcements as a result of the decline \
in the market, but you won't know until after the )Tj
0 -1.2 TD
(companies are done reporting how many companies took advantage of the op\
portunity to buy more. We're in the process of )Tj
T*
(finding out now. Again, we focus on the action, not the announcement. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
0 -1.073 TD
(So, based on your methodology, there could be a lot of undervalued stock\
s in the current environment. )Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Yes, but I would caution people who want to adopt this approach by thems\
elves. Take a look at a couple of our companies )Tj
0 -1.2 TD
(like Gateway and Yahoo!, or companies like Oracle, [which] repurchased s\
hares and the stock went down. The same for )Tj
0 -1.2 TD
(Winn-Dixie, which was in one of our portfolios. They don't all work out.\
Just like any other methodology, it's not foolproof. )Tj
0 -1.2 TD
(And that's why we take a balanced portfolio approach. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
0 -1.073 TD
(What about the argument that you shouldn't be buying into companies that\
buy back stock because it may be a )Tj
0 -1.2 TD
(sign that management is not really being creative or smart about employi\
ng their capital? Instead, they should be )Tj
0 -1.227 TD
(investing in new projects or growing their business.)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Often the companies I invest in can do both: buy back stock, and invest \
in research and development. And sometimes their )Tj
0 -1.2 TD
(own stock is a better investment than anything else. The same people who\
make that criticism will go ahead and turn )Tj
T*
(around and criticize the company for making a bad acquisition. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
0 -1.073 TD
(But aren't mature companies more likely to buy back stock than young gro\
wing companies that need every bit of )Tj
0 -1.2 TD
(capital they have to invest in things like software or expansion? )Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Yes, sometimes that's true. There is a lifecycle component. But it also \
makes our strategy a little less volatile. )Tj
T*
( )Tj
/TT1 1 Tf
0 -1.073 TD
(Thanks. )Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
/TT2 1 Tf
0 -1.1 TD
(Send comments and questions to)Tj
/TT0 1 Tf
( )Tj
0 0.2 0.6 rg
(investingnewsletters@forbes.net)Tj
0 0 0 rg
(. )Tj
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( )Tj
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(More Adviser Q&A)Tj
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( )Tj
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(the market. )Tj
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( )Tj
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T*
(So there were a lot of buybacks during the tech runup?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Yes, there were a lot of buybacks in '98 to '99, but not in those sector\
s. )Tj
T*
( )Tj
/TT1 1 Tf
0 -1.073 TD
(What are you finding today? Is it changed now that the market's come bac\
k? Is there more of a broad-based trend )Tj
0 -1.227 TD
(in share repurchase?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(You saw a big increase in buyback activity after Sept. 11, in part becau\
se stocks were cheaper and in part because of the )Tj
0 -1.2 TD
(relaxed rules by the [Securities and Exchange Commission]. The SEC relax\
ed buyback rules for public companies by )Tj
T*
(making it easier for them to trade their own stocks for approximately a \
month after trading reopened. They did it two ways. )Tj
T*
(The guidelines say that the companies shouldn't buy back more than 25% o\
f the prior month's trading volume in a given )Tj
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(day. That was waived and instead the companies could buy 100%. The other\
thing that was waived was that typically a )Tj
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(company can't open or close trading, meaning companies can't buy or sell\
their own shares in the first and last half-hour. )Tj
0 -1.2 TD
(The rationale for that is that the SEC doesn't want companies making mar\
kets in their own stocks, which is very )Tj
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(understandable. That was waived for approximately four weeks after tradi\
ng reopened. )Tj
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( )Tj
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T*
(And the result was that you had a surge of buybacks?)Tj
/TT0 1 Tf
( )Tj
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( )Tj
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(Well, you had a lot of buyback announcements as a result of the decline \
in the market, but you won't know until after the )Tj
0 -1.2 TD
(companies are done reporting how many companies took advantage of the op\
portunity to buy more. We're in the process of )Tj
T*
(finding out now. Again, we focus on the action, not the announcement. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
0 -1.073 TD
(So, based on your methodology, there could be a lot of undervalued stock\
s in the current environment. )Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Yes, but I would caution people who want to adopt this approach by thems\
elves. Take a look at a couple of our companies )Tj
0 -1.2 TD
(like Gateway and Yahoo!, or companies like Oracle, [which] repurchased s\
hares and the stock went down. The same for )Tj
0 -1.2 TD
(Winn-Dixie, which was in one of our portfolios. They don't all work out.\
Just like any other methodology, it's not foolproof. )Tj
T*
(And that's why we take a balanced portfolio approach. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
0 -1.073 TD
(What about the argument that you shouldn't be buying into companies that\
buy back stock because it may be a )Tj
0 -1.2 TD
(sign that management is not really being creative or smart about employi\
ng their capital? Instead, they should be )Tj
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(investing in new projects or growing their business.)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
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(Often the companies I invest in can do both: buy back stock, and invest \
in research and development. And sometimes their )Tj
0 -1.2 TD
(own stock is a better investment than anything else. The same people who\
make that criticism will go ahead and turn )Tj
T*
(around and criticize the company for making a bad acquisition. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
0 -1.073 TD
(But aren't mature companies more likely to buy back stock than young gro\
wing companies that need every bit of )Tj
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(capital they have to invest in things like software or expansion? )Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
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(Yes, sometimes that's true. There is a lifecycle component. But it also \
makes our strategy a little less volatile. )Tj
T*
( )Tj
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(Thanks. )Tj
/TT0 1 Tf
( )Tj
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( )Tj
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(the market. )Tj
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( )Tj
/TT1 1 Tf
T*
(So there were a lot of buybacks during the tech runup?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
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(Yes, there were a lot of buybacks in '98 to '99, but not in those sector\
s. )Tj
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( )Tj
/TT1 1 Tf
0 -1.073 TD
(What are you finding today? Is it changed now that the market's come bac\
k? Is there more of a broad-based trend )Tj
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(in share repurchase?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
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(You saw a big increase in buyback activity after Sept. 11, in part becau\
se stocks were cheaper and in part because of the )Tj
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(relaxed rules by the [Securities and Exchange Commission]. The SEC relax\
ed buyback rules for public companies by )Tj
T*
(making it easier for them to trade their own stocks for approximately a \
month after trading reopened. They did it two ways. )Tj
T*
(The guidelines say that the companies shouldn't buy back more than 25% o\
f the prior month's trading volume in a given )Tj
T*
(day. That was waived and instead the companies could buy 100%. The other\
thing that was waived was that typically a )Tj
0 -1.2 TD
(company can't open or close trading, meaning companies can't buy or sell\
their own shares in the first and last half-hour. )Tj
0 -1.2 TD
(The rationale for that is that the SEC doesn't want companies making mar\
kets in their own stocks, which is very )Tj
T*
(understandable. That was waived for approximately four weeks after tradi\
ng reopened. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(And the result was that you had a surge of buybacks?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Well, you had a lot of buyback announcements as a result of the decline \
in the market, but you won't know until after the )Tj
0 -1.2 TD
(companies are done reporting how many companies took advantage of the op\
portunity to buy more. We're in the process of )Tj
T*
(finding out now. Again, we focus on the action, not the announcement. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
0 -1.073 TD
(So, based on your methodology, there could be a lot of undervalued stock\
s in the current environment. )Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Yes, but I would caution people who want to adopt this approach by thems\
elves. Take a look at a couple of our companies )Tj
0 -1.2 TD
(like Gateway and Yahoo!, or companies like Oracle, [which] repurchased s\
hares and the stock went down. The same for )Tj
0 -1.2 TD
(Winn-Dixie, which was in one of our portfolios. They don't all work out.\
Just like any other methodology, it's not foolproof. )Tj
T*
(And that's why we take a balanced portfolio approach. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
0 -1.073 TD
(What about the argument that you shouldn't be buying into companies that\
buy back stock because it may be a )Tj
0 -1.2 TD
(sign that management is not really being creative or smart about employi\
ng their capital? Instead, they should be )Tj
0 -1.227 TD
(investing in new projects or growing their business.)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Often the companies I invest in can do both: buy back stock, and invest \
in research and development. And sometimes their )Tj
0 -1.2 TD
(own stock is a better investment than anything else. The same people who\
make that criticism will go ahead and turn )Tj
T*
(around and criticize the company for making a bad acquisition. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
0 -1.073 TD
(But aren't mature companies more likely to buy back stock than young gro\
wing companies that need every bit of )Tj
0 -1.2 TD
(capital they have to invest in things like software or expansion? )Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Yes, sometimes that's true. There is a lifecycle component. But it also \
makes our strategy a little less volatile. )Tj
T*
( )Tj
/TT1 1 Tf
0 -1.073 TD
(Thanks. )Tj
/TT0 1 Tf
( )Tj
10.7692 0 0 10.7692 10 200.8987 Tm
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( )Tj
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(Adviser Q&A)Tj
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( )Tj
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(Buys Among Buyback Stocks )Tj
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10.7692 0 0 10.7692 10 653.0604 Tm
(Matthew Schifrin, Forbes.com, )Tj
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(11.05.01, 3:00 PM ET)Tj
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( )Tj
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( )Tj
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(David Fried)Tj
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(, editor in chief of Pacific Palisades, Calif.-based )Tj
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(The Buyback Letter)Tj
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(, has been tracking and investing in the )Tj
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(stocks of companies that buy in their own shares for the last six years.\
Fried is convinced that the stocks of these )Tj
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(companies outperform their peers. His record, according to )Tj
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/TT0 1 Tf
(The Hulbert Financial Digest)Tj
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/TT2 1 Tf
(, seems to bear this out. According )Tj
0 -1.384 TD
(to HFD, Fried's Buyback Index portfolio has gained 131% since inception \
in 1997, beating all other stock letters on a risk-)Tj
0 -1.2 TD
(adjusted basis. His value-oriented picks have held up well during the re\
cent downturn: Year to date, this Index portfolio is )Tj
T*
(down 1%. Ironically Fried's Buyback High Tech Index, is up 11% since its\
inception in February 2000, compared to a 58% )Tj
0 -1.2 TD
(drop in the Nasdaq Composite since that time. Fried is a Cornell graduat\
e who owned a company in the garment industry )Tj
T*
(before starting the Buyback Letter in 1997. He also uses his strategy to\
manage private accounts in buyback stocks )Tj
0 -1.201 TD
(through his investment advisory firm, )Tj
/TT1 1 Tf
(Fried Asset Management)Tj
/TT2 1 Tf
(.)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
/TT1 1 Tf
0 -1.073 TD
(Forbes: How did you come up with the idea for a letter devoted solely to\
companies that are buying back their )Tj
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(shares?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(DF: In 1994, Mark Hulbert wrote a column for )Tj
/TT2 1 Tf
(Forbes)Tj
/TT0 1 Tf
( where he talked about an indicator that worked: how companies that )Tj
0 -1.201 TD
(have announced stock repurchases had outperformed the market. His resear\
ch was cited from the )Tj
/TT2 1 Tf
(Journal of Finance)Tj
/TT0 1 Tf
( and )Tj
T*
(that research said that there was a market underreaction to open market \
share repurchases. In that same article, he talked )Tj
0 -1.2 TD
(about how companies that issued stock underperformed the market. So from\
that I developed what I call my share supply )Tj
T*
(theory, which simply states that an increase in shares is bad for shareh\
olders and a decrease in shares is good for )Tj
T*
(shareholders. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(That's pretty straightforward...)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Because, in the aggregate, the captains of industry who run our companie\
s know when to hold 'em and when to fold 'em. )Tj
0 -1.2 TD
(When their shares are overextended or overvalued, they can be counted on\
to issue shares as a source of cheap money )Tj
T*
(for future growth. And when their shares are undervalued given the futur\
e earnings prospects of the company, whether that )Tj
T*
(be internal growth or acquisitions or products or whatever, they buy bac\
k stock. What I have done is taken the academic )Tj
0 -1.2 TD
(research to the next step, focusing on companies that actually do repurc\
hase their stocks. Of course, there's a lot of white )Tj
T*
(noise in buybacks. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(What kind of white noise?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(The white noise that I'm talking about is the main criticism of buybacks\
. They don't happen. Companies announce them and )Tj
0 -1.2 TD
(they don't happen. Another criticism is that companies buy back shares, \
but they're only offsetting dilution of options and )Tj
T*
(things like that. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(So how do you cut through the white noise?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(We look at the actual share count after each quarter and look for reduct\
ion. The number is published in the quarterly )Tj
0 -1.2 TD
(statement. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(What are your criteria for choosing a good buyback candidate for your po\
rtfolios?)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(Well, we've been quite successful focusing on companies that have a nega\
tive year-over-year share count of at least 3%. )Tj
0 -1.2 TD
(After we find stocks that fall into this category, we rank them accordin\
g to other value-oriented fundamental criteria. )Tj
0 -1.1 TD
( )Tj
/TT1 1 Tf
T*
(Let's talk about one of your most popular portfolios, the Buyback Dogs.)Tj
/TT0 1 Tf
( )Tj
0 -1.127 TD
( )Tj
0 -1.1 TD
(The thesis on that is as follows. Most investors are familiar with that,\
the Dogs of the Dow, which says that the ten Dow )Tj
ET
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2006-02-09T19:55:38-05:00
2005-11-16T13:38:53-05:00
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