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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Capital Spending

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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 01/13/2017
19,886 -5.27 0.0%
9,202 57.87 0.6%
657 -0.99 -0.2%
5,574 26.63 0.5%
2,275 4.20 0.2%
YTD
0.6%
1.8%
-0.4%
3.5%
1.6%
Tom's Targets    Overview: 12/30/2016
19,250 or 20,250 by 01/15/2017
8,880 or 9,550 by 01/15/2017
625 or 690 by 01/15/2017
5,650 or 5,400 by 01/15/2017
2,350 or 2,240 by 01/15/2017
Indus strength: None YTD
Mutt Losers: None YTD
Mutt Winners: None YTD

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

My book, Fundamental Analysis and Position TradingFundamental Analysis and Position Trading: Evolution of a Trader book., pictured on the left, has a complete chapter dedicated to capital spending, including, "Is Decreasing Capital Spending the Holy Grail?"

If you click on this link and then buy the book (or anything) at Amazon.com, the referral will help support this site. Thanks. -- Tom Bulkowski

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This page reviews a study concerning the stock performance of companies with growing or shrinking capital spending.

Capital Spending Summary

Value Line defines capital spending per share as "the outlays for plant and equipment for the year expressed on a per-share basis. Excludes funds spent for acquisitions."

The idea behind looking at capital spending is to discover what happens to the stock's performance when the number changes. If the company spends a lot of money on new plants, does that hurt the stock's performance? Some might say that little capital spending is best. Try to find a company that requires little cash to keep it running, but throws off a lot or cash when compared to another business that sucks most of the available cash to keep it going.

I discovered that companies showing lower capital spending from one year to the next have dramatic price changes in the coming years.

Capital Spending Methodology

I used the Value Line investment survey and typed in their capital spending numbers to build a database of 178 stocks with data ranging from 12/30/1991 to 7/11/2008.

After completing the database, I logged the close-to-close price change from 1 to 5 years out, looking forward from the base year. The base year ranged from 1992 to 2006. Not all stocks covered the entire range. Years with no numbers were excluded. The price change measured from the close on the last trading day of each year. Years 2008 and later are not included since the year had not completed as of the time of this study.

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Capital Spending Results

The following table shows the stock performance over time of companies with increasing or decreasing capital spending.

1 yrSamples2 yrsSamples3 yrsSamples4 yrsSamples5 yrsSamples
Higher cap spending10.10%58810.90%50610.30%4299.70%3739.30%331
Lower cap spending21%35418.30%34119.10%32722.10%30022.20%257

For example, the first year after companies had higher capital spending than the prior year, the stock climbed an average of 10.1% over the next year. This compares to a rise of 21% for those stocks that had a decrease in capital spending. The average rise over 2 years was 10.9% versus 18.3% for higher and lower capital spending, respectively.

As you scan across the columns in the table, it shows that stocks with lower capital spending perform about twice as well as those with higher spending.

-- Thomas Bulkowski

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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Sign you have a drinking problem: You have to hold onto the lawn to keep from falling off the earth.