BUYBACK GURU COMPANIES THAT INVEST IN OWN STOCK ARE WORTH PUTTING MONEY INTO.

Byline: Evan Pondel Staff Writer

David Fried may look at himself in the mirror every morning, but he's not nearly as fond of his reflection as he is of companies who look pretty good to themselves.

The 44-year-old owned a garment business in Los Angeles called Sitting Pretty. But after 15 years of selling budget blouses, the Cornell graduate ditched the smocks to pitch stocks through his own investment newsletter and now manages six-figure portfolios, most including companies that buy back their own stocks.

``If a company's not buying its own stock, why should I?'' Fried asks. The philosophy behind his investment strategy stems from a concept called ``the repurchase effect.'' The Malibu resident became acquainted with the theory after reading an article in 1994 written by Mark Hulbert, the editor of Hulbert Financial Digest.

Seven years later, Fried still has a copy of the article with phone numbers scrawled across the columns and ideas hastily written in the margins.

``This is where it all began,'' Fried said, as he pulled a copy of the article out of a filing cabinet in his office in Pacific Palisades.

While Fried enjoyed writing his newsletter, which garnered about 1,500 subscribers, the pay was scant and he decided to become a registered investment adviser, imparting his financial wisdom on clients' portfolios.

Fried said if a company purchases its own stock and decreases its number of shares outstanding by 3 percent, the company's earnings per share will rise and the value of the shareholders' current holdings will increase, he said.

He's investing in that company.

Scott Irvin, a CPA with Sherman Oaks-based Krycler, Irvin, Schreiber and Walheim, utilizes Fried's services for the company's profit-sharing plan.

Last year, Irvin said, the portfolio Fried managed earned about 14 percent profit.

``We use three different brokers, and he's pretty much the top dog,'' Irvin said. ``We're accountants so we're conservative, and his philosophy seems like a good way to go.''

Jack Lippman, who owns an agency in Hollywood that places butlers and nannies in the homes of celebrities, has been Fried's client for about a year.

The 34-year-old allows Fried to have full reign of his assets.

``There are so many strategies, but this one seems to prove itself over the long term,'' Lippman said.

Experts agree that Fried's strategy is logical. However, instead of looking at individual stocks, it's necessary to perceive the broader picture, said William Jennings, professor of finance and department chairman at California State University, Northridge.

``It may be public information that a company plans to repurchase its stock, but it's how you allocate your portfolio that's important,'' Jennings said.

The style and the types of assets investors have in their portfolios usually account for 90 percent of the money investors make on their investments, Jennings said.

Many of the companies that make the cut for Fried's portfolios are stocks people have traditionally invested in because they are inherently strong. Companies like Boeing, General Motors, Caterpillar Inc., Eastman Kodak Co. and Hewlett-Packard Inc. have all made it to Fried's list.

``There's nothing wrong with doing anything like this. If there are any gains, the returns are probably pretty small,'' Jennings said.

As for the reason companies usually repurchase stock, Daniel McConaughy, an assistant CSUN professor, said companies that have a lot of cash will buy their own shares as an investment. When a company invests in itself, the group exudes confidence to its shareholders. Once the stock begins to rise, the company is then able to cash in on its investment, McConaughy said.

``Management wouldn't waste good cash on a bad investment,'' he said.

Currently, Fried has over 100 accounts and is averaging 15 percent on his investments this year. Fried said he will continue to invest in companies that repurchase their shares, regardless of the market's recent volatility.

``The investor of today does not suffer from past mistakes,'' he said.

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Photo:

(color) David Fried advises his clients to invest in companies that invest in their own stock.

David Sprague/Staff Photographer