Birinyi Associates is a money management and research firm. Our analysis and research of the markets complement our portfolio management efforts. We are unique in that we do not analyze the economy, have little interest in corporate developments and fundamentals, and have little use for traditional, technical, quantitative or other market indicators. Our approach is to understand the psychology and history of the market, and most importantly the actions of investors. Much of our effort involves money flows, or what has traditionally been called ticker tape analysis. We follow the ideology of Charles Dow in our methods. As he stated years ago, start with the market's input:

"The market reflects all that the jobber knows about the condition of the textile trade; all that the banker knows about the money market; all that the best-informed president knows of his own business, together with his knowledge of all other businesses; it sees the general condition of transportation in a way that the president of no single railroad can ever see; it is better informed on crops than the farmer or even the Department of Agriculture. In fact, the market reduces to a bloodless verdict all knowledge bearing on finance, both domestic and foreign.

The price movements, therefore, represent everything everybody knows, hopes, believes and anticipates. Hence, there is no need to supplement the price movements, as some statisticians do, with elaborate compilations of commodity price index numbers, bank clearings, fluctuations in exchange or anything else. The price movements themselves reflect all these things, and therefore an understanding of the price movements of the market."

-Charles Dow

The firm has three main areas of focus: US equity research, Global equity research and Money Management.

US Equity Research: Laszlo Birinyi began analyzing and writing about US equity markets with Salomon Brothers in 1976. He worked there until 1989 when he left to establish his own firm, Birinyi Associates. The firm remains at the cutting edge of market analysis through its equity research products.

Global Equity Research: Birinyi Associates monitors global equity markets and provides real-time research to global investors. Our coverage includes over 4000 stocks in more than 40 markets worldwide.

Money Management: Birinyi Associates has effectively utilized its research expertise in a money management practice and has been managing investment accounts for high net-worth individuals for over 12 years.

Laszlo Birinyi, Jr is the President of Birinyi Associates Inc. He began his career as a sales trader where he conceived the idea of a trading calendar and other market- oriented products. In 1976, he joined Salomon Brothers with a mandate to develop products and analysis that would provide market intelligence and information to the firm's clients and traders. The first of these, the Block Trading Monitor, detailed the movement of block trades and unusual accumulation and distribution and led to even more detailed information, or money flows.

In addition, he wrote the firm's first weekly market commentary, Stock Week, and topical studies on volatility, flow of funds, market structure and transaction costs. One of his efforts was The Equity Desk, a book written for Salomon Brothers' training classes and was highlighted in the book, Liar's Poker. Mr. Birinyi was later given the additional responsibility for international analysis and was the architect of the Salomon- Russell International Index.

In 1989, while a Director at Salomon Brothers, Mr. Birinyi left to form Birinyi Associates where his first consulting client was Bloomberg LP for whom he designed a variety of equity functions.

While Birinyi Associates is the primary focal point of his professional activity, Mr. Birinyi is also an occasional contributor to Forbes and Bloomberg Personal Finance. In addition, he has been a panelist on Wall $treet Week with Louis Rukeyser since 1990. He has been on the year-end show in six of the last ten years and was inducted into the W$W Hall of Fame in 1999.

Philosophically, money flow analysis takes its lead from the market. Instead of relying on fundamental ratios to assess value, money flow analysis looks to what the market itself is signaling about a stock, sector or market. This signal may be about interest rates, commodity prices, earnings expectations, future sales or takeover activity. Money flow analysis rests on the classic economic principles of how supply and demand imbalances affect prices. The complication is that the stock market is a market in which there is not normally an outside supply of stock (company issuance of new stock or repurchase of stock for cancellation are the exceptions to this). Therefore, the stock market operates as a closed system with all investors playing a zero-sum game: one group of investors supply the stock to fulfill demand from another group of investors. Money Flow analysis seeks to measure the excess of demand over supply in a stock, sector or market. It also seeks to establish whether trading is led by buyers (excess demand over supply) or by sellers (more supply than demand), and from this determine future price performance.

Constructing and interpreting money flows is done by monitoring every single trade in a stock. Although for every trade there is always a buyer and a seller, it is very important which comes first - the buy order or the sell order. For example, many buy orders cumulating up one after the other will eventually lead to upwards share-price performance as sellers of the stock require higher and higher price to sell their positions. Birinyi Associates monitors every trade for the major stocks not only in the US, but also in 36 markets worldwide to determine money flow. Although price and volume data on every trade is available, whether the trade is originated by a buyer or a seller is not, so an assumption has to be made. The key assumption of our analysis is that if the trade in question is at a higher level than the previous trade (that is, an up-tick) then it is deemed to be as a result of buying interest. A down-tick is deemed to be a sell led trade.

The next step is to construct the Money Flow for the trade in question: this is the volume of the trade multiplied by the price of the transaction. A buy-led transaction (up-tick) is treated as positive money flow, while a sell-led transaction (down-tick) is treated as negative money flow so that a cumulative picture of Money Flows can be built up. The longer the time period associated with any trend of buying or selling identified by the cumulative money flows, the more statistically accurate it is. Thus Money Flow is equivalent to the net buying or selling interest in a stock, or sector or market. Net interest because any trade that is 'crossed' without changing the prevailing market price is discarded in this analysis (as it should be, because it does not affect the stock price).

Clearly this relationship can change at any time given that the tightness with which stocks are held depends on sentiment but chart to the left shows that the Media sector has been treated consistently by the market in 2002 both in the bullish times early on, and the bearish times thereafter. However, in around one in five examples, a stock is marked higher or lower, contrary to the direction of the real trade. This divergence in money flows from stock prices is the most interesting signal in our analysis as it is a lead indicator of future performance.

There are two main ways to use money flow analysis. Continuations show that the market is continuing to buy/sell a stock and that the stock price movement is reasonable. Following this trend is not predictive because flows can always change but it substantially lowers risk as the investment is following the prevailing market logic. Divergences signal when price and money flow have decoupled. This often happens at a turning point in a stock, sector or market. This situation is predictive as stock prices ultimately follow the direction of money flows.

Don't fight the tape is a prominent cliché throughout Wall Street and we hope to highlight what the tape is saying through our research.