Daily
Speculations
(as of April 3, 2003)
“Buybacks are always good, and share issuance is always bad.” That’s the word from Professor Theo Vermaelen, a professor at the INSEAD school of Fontainebleu, France, who knows as much about buybacks as anyone, having conducted numerous studies on corporate buybacks and founded a hedge fund based on his findings
Buybacks, alas, are not the holy grail. We confirmed Vermaelen’s work with our own studies in 2002. But always the cycles change. Vermaelen’s fund had great initial success, but suffered a 50 percent loss after the market peaked in March 2000. That was 10 percentage points worse than the S&P 500. When Laurel visited him Fontainebleu in March, the professor told her that the strategy should work over normal investment horizons when stock prices rise. In a steeply declining market, one would not expect that the strategy would work, as companies that hold on to their cash should do better than companies that repurchase stock at inflated levels.
Since we first reported on Vermaelen’s work in April 2001, he has studied the predictive properties of private placement buybacks and buybacks associated with put options, a strategy practiced by our employer. The professor often found that he and another red-hood academic, Eugene Fama of Dimension, were the only two bidding in size for certain small-cap stocks. Heisenberg might have asked: Did the academics create the anomaly in the first place, or did their buying spoil the results for each other?
We counsel the reader to take the following list with all the above-mentioned grains of salt.
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BUYBACKS
01/01/03-04/02/03 |
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Ticker |
Company |
Announcement Date |
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CC |
CIRCUIT
CITY |
1/7/2003 |
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PGR |
PROGRESSIVE
CORP |
1/7/2003 |
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BSC |
BEAR
STEARNS COS |
1/8/2003 |
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APC |
ANADARKO |
1/10/2003 |
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BNI |
BURLINGTON/SANTA
FE |
1/16/2003 |
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BAC |
BANK OF
AMERICA |
1/22/2003 |
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LEH |
LEHMAN
BROS HLDG |
1/22/2002 |
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SWY |
SAFEWAY
INC |
1/23/2003 |
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BDX |
BECTON
DICKINSON |
1/28/2003 |
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CAH |
CARDINAL
HEALTH |
1/28/2003 |
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KRI |
KNIGHT-RIDDER |
1/28/2003 |
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NFB |
NORTH
FORK BANCORP |
1/28/2003 |
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AZO |
AUTOZONE
INC |
1/29/2003 |
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MHP |
MCGRAW-HILL
COS |
1/29/2003 |
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BF/B |
BROWN-FORMAN
-B |
2/3/2003 |
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LTD |
LIMITED
BRANDS |
2/3/2003 |
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SLE |
SARA LEE
CORP |
2/3/2003 |
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ALL |
ALLSTATE
CORP |
2/4/2003 |
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ZMH |
ZIMMER
HLDGS |
2/4/2003 |
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GD |
GENERAL
DYNAMICS |
2/5/2003 |
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MAR |
MARRIOTT
INTL-A |
2/6/2003 |
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QCOM |
QUALCOMM
INC |
2/11/2003 |
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SFA |
SCIENTIFIC
ATLAN |
2/12/2003 |
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COL |
ROCKWELL
COLLINS |
2/14/2003 |
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KMB |
KIMBERLY-CLARK |
2/18/2003 |
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TXN |
TEXAS
INSTRUMENT |
2/20/2003 |
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NCC |
NATL CITY
CORP |
2/24/2003 |
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CVG |
CONVERGYS
CORP |
2/25/2003 |
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MO |
ALTRIA
GROUP INC |
2/26/2003 |
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TMO |
THERMO
ELECTRON |
2/28/2003 |
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IGT |
INTL GAME
TECH |
3/3/2003 |
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DG |
DOLLAR
GENERAL |
3/14/2003 |
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SCH |
SCHWAB
(CHARLES) |
3/17/2003 |
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WLP |
WELLPOINT
HEALTH |
3/18/2003 |
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CSCO |
CISCO
SYSTEMS |
3/19/2003 |
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INTU |
INTUIT
INC |
3/24/2003 |
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WOR |
WORTHINGTON
INDS |
3/24/2003 |
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BUD |
ANHEUSER
BUSCH |
3/26/2003 |
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FITB |
FIFTH
THIRD BANCORP |
3/27/2003 |
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EOP |
EQUITY
OFFICE PROPERTIES |
3/31/2003 |
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SBUX |
STARBUCKS
CORP |
3/31/2003 |