{"id":4972,"date":"2014-07-06T15:20:11","date_gmt":"2014-07-06T15:20:11","guid":{"rendered":"http:\/\/juniorminingnews.com\/?p=4972"},"modified":"2014-07-06T15:20:11","modified_gmt":"2014-07-06T15:20:11","slug":"using-supply-and-demand-to-beat-the-market-interview-with-charles-biderman","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=4972","title":{"rendered":"Using Supply and Demand to Beat the Market: Interview with Charles Biderman"},"content":{"rendered":"<p><strong>By Dan Steinhart<\/strong><br \/>\n<em><a href=\"http:\/\/www.caseyresearch.com\/go\/v8zn6-2\/CSW\" target=\"_blank\">Managing Editor, The Casey Report<\/a><\/em><\/p>\n<figure id=\"attachment_4973\" aria-describedby=\"caption-attachment-4973\" style=\"width: 160px\" class=\"wp-caption alignright\"><img decoding=\"async\" loading=\"lazy\" class=\"size-full wp-image-4973\" src=\"http:\/\/juniorminingnews.com\/wp-content\/uploads\/2014\/07\/biderman160.jpg\" alt=\"Charles Biderman\" width=\"160\" height=\"240\" data-id=\"4973\" \/><figcaption id=\"caption-attachment-4973\" class=\"wp-caption-text\">Charles Biderman<\/figcaption><\/figure>\n<p>It\u2019s an investing strategy so simple, you\u2019ll wonder why you didn\u2019t think of it.<iframe loading=\"lazy\" src=\"http:\/\/trk.caseyresearch.com\/f\/?content_id=913&amp;code=CSW&amp;editorial=using-supply-and-demand-to-beat-the-market-an-interview-with-fund-manager-1\" width=\"1\" height=\"1\" frameborder=\"0\"><\/iframe><\/p>\n<p>Like any other market, the stock market obeys the laws of supply and demand. Reduce supply, and prices should rise.<\/p>\n<p>Therefore, companies that reduce their outstanding shares by buying back their own stock should outperform the market.<\/p>\n<p>That\u2019s the basic theory that\u00a0<strong>Charles Biderman<\/strong>, who was recently\u00a0<a href=\"http:\/\/www.caseyresearch.com\/go\/v8zc8-2\/CSW\" target=\"_blank\">featured in\u00a0<em>Forbes<\/em><\/a> and is chairman and founder of TrimTabs Investment Research, follows to manage his ETF,\u00a0<strong>TrimTabs Float Shrink (TTFS)<\/strong>.<\/p>\n<p>And it works. Since its inception in October 2011, TTFS has beaten the S&amp;P 500 by 15 percentage points. That\u2019s no small feat, especially during a bull market. Most hedge fund managers would sacrifice their firstborns for such stellar performance.<\/p>\n<p>There are, of course, nuances to the strategy, which Charles explains in an interview with Casey Research\u2019s managing editor Dan Steinhart below. For example, companies must use their own money to buy back shares. Borrowing for buybacks is a no-no.<\/p>\n<p>It\u2019s also worth mentioning, you can meet and learn all about Charles\u2019 strategy in person. He\u2019ll be available at \u00a0Casey Research\u2019s Summit:\u00a0<strong><em>Thriving in a Crisis Economy<\/em><\/strong>\u00a0in San Antonio, TX from September 19-21 where he\u2019ll be working with attendees to teach them how to beat the market using supply and demand analysis.<\/p>\n<p>And Charles is just one of many all-stars on the faculty for this summit \u2014\u00a0<a href=\"http:\/\/www.caseyresearch.com\/go\/v8zf9-2\/CSW\" target=\"_blank\">click here to browse the others<\/a>, which include Alex Jones, Jim Rickards, and, of course, Doug Casey.<\/p>\n<p>Also, you can still sign up for this Summit and meet some of the world\u2019s brightest financial minds and receive a special early-bird discount. You\u2019ll save $400 if you sign up by July 15<sup>th<\/sup>. <a href=\"http:\/\/www.caseyresearch.com\/go\/v8z3a-2\/CSW\">Click here to register now.<\/a><\/p>\n<p>Now for the complete Charles Biderman interview. Enjoy!<\/p>\n<p><strong>Using Supply and Demand to Beat the Market: An Interview with Fund Manager Charles Biderman<\/strong><\/p>\n<p><strong>Dan:<\/strong>\u00a0Thanks for joining us today, Charles. Could you start by telling us a little bit about your unique approach to stock market research?<\/p>\n<p><strong>Charles:<\/strong>\u00a0Sure. I\u2019ve been following the markets for 40 years. Everybody talks about earnings and interest rates and growth rates and what the government is doing. But here\u2019s the thing: the stock market is made up of shares of stock. That\u2019s it. There is nothing else in the stock market.<\/p>\n<p>So my firm tracks the supply and demand of the stock market. The number of shares outstanding is the supply. Money is the demand. We discovered when more money chases fewer shares, the market goes up. Isn\u2019t that shocking?<\/p>\n<p><strong>Dan:<\/strong>\u00a0[Laughs] Not very, when you put it that way.<!--more--><\/p>\n<p><strong>Charles:<\/strong>\u00a0Whenever I talk with individual investors, I tell them that there\u2019s only one reason for them to listen to me: that they think I can help them beat the market. I\u2019ve spent 40-some years looking at markets in a different way than other people. I\u2019ve found that the market is like a casino: it has a house and players. You know the house has an edge, because if it didn\u2019t, the stock market wouldn\u2019t exist.<\/p>\n<p>Who is the house in the stock market? Not brokers, or even high-frequency traders. Companies are the house. As investors, we\u2019re playing with their shares, and the companies know more about them than we do.<\/p>\n<p>I\u2019ve discovered that companies buy back their own shares because they think the price is heading higher. So when a company buys back its own shares\u00a0<em>using its own money<\/em>, you should buy that stock too. But only if the company uses its own money. Borrowing money to buy shares is a no-no.<\/p>\n<p>Conversely, when companies are growing their shares outstanding by selling stock to raise money, they don\u2019t like where their stock price is headed. If they don\u2019t want to own their own stock, you shouldn\u2019t either.<\/p>\n<p>My basic philosophy is to follow supply and demand of stocks and money, and you can\u2019t go wrong.<\/p>\n<p><strong>Dan:<\/strong>\u00a0Your theory has worked very well in practice. Your TrimTabs Float Shrink ETF (TTFS) beat the S&amp;P 500 by an impressive 12 percentage points in 2013. And that\u2019s really saying something, considering how well the S&amp;P 500 performed.<\/p>\n<p><strong>Charles:<\/strong>\u00a0Yes, and we\u2019ve outperformed the S&amp;P 500 over the past year as well.<\/p>\n<p><strong>Dan:<\/strong>\u00a0What specific investment strategies did you use to generate that return?<\/p>\n<p><strong>Charles:<\/strong>\u00a0Our fund invests in 100 companies that are growing free cash flow \u2014 which is the money left over after taxes, R &amp; D, capital expenditures, and dividends \u2014 and using it to buy back their own shares.<\/p>\n<p>We modify our holdings every month because we\u2019ve discovered that the positive effects of buybacks only last for a short time. So when a company stops shrinking its float, we kick it out. Our turnover is about 20 stocks per month.<\/p>\n<p><strong>Dan:<\/strong>\u00a0The supply side of the equation seems pretty straightforward. What do you use to approximate demand? Money supply numbers?<\/p>\n<p><strong>Charles:<\/strong>\u00a0Sort of. Institutions own around 80% of the shares of the Russell 1000, so we track the money that flows through them into and out of the stock market.<\/p>\n<p>We also track wage and salary growth. We\u2019re not interested in income generated by government actions, but rather by the wages of the 137 million Americans who have jobs subject to withholding. Money for investment comes from income. People can only invest the money they have left over after they cover expenses.<\/p>\n<p>Income in the US is currently around $7.5 trillion per year. That\u2019s an increase of around $300 million over last year, or a little under 3% after inflation. That\u2019s not sufficient to generate money for investment.<\/p>\n<p>However, the Fed\u2019s zero interest-rate policy has showered companies with plenty of cash to improve their operations. As a result, many industries have record-high profit margins. But at the same time, most management teams are still afraid to reinvest their profits into expanding their businesses because they don\u2019t see final consumption demand growing. So these companies have been buying back their shares instead. The total number of shares in the market has declined pretty much consistently since 2010.<\/p>\n<p>An investment institution typically targets a specific percentage of cash to hold, say 5%. So when a company buys back its own stock from these institutions, the institutions now have more money and fewer shares. To meet their cash allocation target, they have to go out and buy more shares. So the end result is more money chasing fewer shares.<\/p>\n<p>This is why we\u2019ve been experiencing a \u201cmelt-up\u201d in the market. It has nothing to do with the economy \u2014 it\u2019s solely due to supply and demand. And as buybacks continue, stock prices will continue to rise.<\/p>\n<p>The caveat is that unless the economy recovers in earnest, the gap between stock prices and the real-world economy will continue to grow. At some point, it will get too wide, and we\u2019ll get a bang moment similar to the housing crisis, when everyone realized that housing prices were too far above their underlying value in 2007.<\/p>\n<p><strong>Dan:<\/strong>\u00a0Do you monitor macroeconomic issues as well?<\/p>\n<p><strong>Charles:<\/strong>\u00a0Yes, but as I like to say, all macro issues manifest as supply and demand eventually. Supply and demand is what\u2019s happening right now. All of those other inputs get us to \u201cnow.\u201d<\/p>\n<p><strong>Dan:<\/strong>\u00a0I understand. So you\u2019re more concerned with the effects of supply and demand than the causes.<\/p>\n<p><strong>Charles:<\/strong>\u00a0Right. Price is a function of the world as it exists right now. If you don\u2019t have cash, it doesn\u2019t matter how fantastic stock market fundamentals look. Without cash, you can\u2019t buy, no matter how compelling the value.<\/p>\n<p><strong>Dan:<\/strong>\u00a0Could you share a preview of what you\u2019ll be talking about at the Casey Research Summit in San Antonio?<\/p>\n<p><strong>Charles:<\/strong>\u00a0I\u2019ll be giving specific advice to individual investors on how to beat the market. Outperforming the overall market is very difficult to do, and earnings analysis and graphic analysis has never been proven to do it over a long period. Supply and demand analysis has. So I will work with attendees and show them how to apply those strategies to beat the market going forward.<\/p>\n<p><strong>Dan:<\/strong>\u00a0Great; I look forward to that. Is there anything else you\u2019d like to add?<\/p>\n<p><strong>Charles:<\/strong>\u00a0The phrase \u201cdisruptive technology\u201d is popular today. I think investing on the basis of supply and demand is a disruptive technology compared with other investing strategies, most of which have never really worked. Cheap, broad-based index funds are so popular because very few investing strategies offer any real edge. I believe supply and demand investing gives me an edge.<\/p>\n<p><strong>Dan:<\/strong>\u00a0Thanks very much for sharing your insights today. I\u2019m excited to hear what else you\u2019ll have to say at our <a href=\"http:\/\/www.caseyresearch.com\/go\/v8z6b-2\/CSW\" target=\"_blank\"><strong><em>Thriving in a Crisis Economy<\/em><\/strong>\u00a0Summit in San Antonio<\/a>.<\/p>\n<p><strong>Charles:<\/strong>\u00a0I\u2019m looking forward to the Summit as well. I hope the aura of the San Antonio Spurs\u2019 victory will rub off on all of us.<\/p>\n<p><strong>Dan:<\/strong>\u00a0Me too. Thanks again.<\/p>\n<hr \/>\n<div id=\"xvMdV95u77zU\" style=\"clear: both;\">The article <a href=\"http:\/\/www.caseyresearch.com\/go\/v8z9c-2\/CSW\" rel=\"permalink\">Using Supply and Demand to Beat the Market: An Interview with Fund Manager Charles Biderman<\/a> was originally published at <a href=\"http:\/\/www.caseyresearch.com\/go\/v8zud-2\/CSW\">caseyresearch.com<\/a>.<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Like any other market, the stock market obeys the laws of supply and demand. Reduce supply, and prices should rise. Therefore, companies that reduce their outstanding shares by buying back their own stock should outperform the market.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/4972"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4972"}],"version-history":[{"count":3,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/4972\/revisions"}],"predecessor-version":[{"id":4976,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/4972\/revisions\/4976"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4972"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4972"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4972"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}