In his latest column for Forbes.com, Validea CEO John Reese explains why Warren Buffett sometimes hopes his stocks languish — and why you should too.
“If you are investing in a firm that is in the middle of a share buyback plan, you should root against the stock in the short-term (so long as its underlying business remains strong),” Reese writes, echoing what Buffett said in his 2011 year-end letter to shareholders. “That way, the company can get a better deal on the shares that it buys back, and you as a shareholder get a bigger cut (because there are fewer outstanding shares) of a bigger pie than would have existed had the company had to shell out more money for the shares.”
Reese uses his Buffett-inspired Guru Strategy to find strong stocks of companies that are in the midst of buyback programs — and which also come from industries that have some clouds hanging over them, “the idea being that these solid firms might face some short-term headwinds that allow them to buy back their shares at bargain prices”. Among the stocks he highlights: luxury handbag-maker Coach.
To read the full article and see all the stocks, click here.