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Strategies & Market Trends : John Pitera's Market Laboratory

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John Pitera

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To: Chip McVickar who wrote (17917)	3/14/2016 12:49:18 PM
From: robert b furman	3 Recommendations Read Replies (1) of 33421

Hi Chip and Ray, I believe that stock buybacks are second best to increased dividends. Both are stockholder friendly. Its clear we have global growth demand that is anemic. Few if any, have ever understood that all of the new plants built in China have forced a global overcapacity of almost all manufacturing processes. If you have run a business so well that you have the moat of success keeping competitors away from your niche - due to high barriers of entry - then you are indeed successful. To buy back stock which drives up the price of the underlying stock is a way of rewarding your management team - which usually has accepted stock options as a substantial portion of their pay. In a world of excess capacity - I think sending retained earnings back to the stockholders is excellent. In fact I think sending retained earnings back to stockholders is an excellent idea in almost all situations - unless demand is so strong that further investment is required.Few companies have that high class problem in todays market. There have been so many scams of accounting gaap and non gaap that returning retained earnings to stockholders is a bit old fashioned and in my view honorable. There are a select few of these great companies that may well call it very smart - The Dividend Aristocrats who have not only paid dividends but increased them for over 25 years. These stocks are mature companies, that as a matter of record, believe in returning retained earnings to their stockholders. There is a power allure from investors for just this type of company. It is important to know where your company fits in the world of stocks. High dividend yielders are just fine depending on where their maturity of market share is. Few dividend aristocrats have high growth rates. It is unfair to expect every company to reinvest every cent made - especially if they do not see demand for their product above the current level of production. We learned that lesson the hard way when semis expanded and took on debt to gain market share - while selling chips below cost - it didn't end pretty. Memory chips were the poster child for this nonsense. Know your company and how it prospers. Own it as long as it fits your needs. To think that all companies are cookie cutters is simply naive.IMO Bob

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