Financial Gravity (Financial Gravity) Predictability Rank

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What is Financial Gravity Predictability Rank?

Warren Buffett said many times that the companies he likes are:

1. Simple businesses that he understands
2. that have predictable and proven earnings and
3. with economic moat
4. those can be bought at a reasonable price.

It is hard to quantify "simple businesses that he (Buffett) understands", so we will focus on the other three characteristics instead. In GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank, we will show that the businesses that have predictable and proven earnings are usually also simple businesses that an average person could understand.

GuruFocus conducted a back test study of Warren Buffett's strategy of "buying good companies at fair prices" for the years from 1998-2008.

Financial Gravity Predictability Rank Calculation

In our database there are 2403 stocks that have been traded from Jan. 2, 1998 to Aug. 31, 2008. We have the complete 10-year financial data and trading prices of these companies for this period. We rank the predictability of these companies based on the consistency of their revenue per share and EBITDA (earning before interest, tax, depreciation and amortization) per share over the past ten fiscal years, and study the correlation between the stock performances and the predictability of the business.

Our study may be subject to these biases and assumptions:

Dividend yields are not counted for investment returns
Effects of price changes due to spin-offs may not be fully adjusted
Study is subjected to survivorship bias due to de-listing, bankruptcy, LBO, M&A, etc.

The correlation between business predictability and investment returns of a company is showed below.

Correlation Between Business Predictability and Investment Returns

	Predictables	Non-Predictable	All stocks
Total Number of stocks	570	1833	2403
Total Lost Money	61	830	891
Total Lost More Than 50%	18	412	430
Total Lost More Than 90%	4	86	90
Average Gain	260.6%	100.0%	138.1%
Median Gain	150.0%	13.0%	39.0%
Maximum Gain	2852.0%	11483.0%	11483.0%
Maximum Loss	-100.0%	-100.0%	-100.0%
Annualized Average Gain	12.7%	6.7%	8.4%
Annualized Median Gain	8.9%	1.1%	3.1%

For the 570 predictable companies, we have seen strong correlation between the predictability of businesses and the stock performances over the past 10 years, regardless of the valuation of business at 1998. Accordingly, we have ranked the business predictability from 5-star to 1-star, as shown in this table.

Predictability Rank	5-Star	4.5-Star	4-Star	3.5-Star	3-Star	2.5-Star	2-Star	1-Star (non-predictable)	Average among all
% Out of All 2403 Stocks	3.3%	2.9%	3.7%	3.3%	3.3%	3.7%	3.3%	76.3%	100%
% that are in Loss (10y)	3%	10%	8%	9%	11%	18%	16%	45%	37%
Average Gain (10y)	364.6%	330.9%	278.0%	235.1%	243.5%	227.8%	154.8%	100.0%	138.1%
Median Gain (10y)	238.5%	193.5%	171.0%	159.0%	132.5%	113.5%	87.0%	13.0%	39.0%
Maximum Gainer	2228.0%	2547.0%	2452.0%	2852.0%	2432.0%	1892.0%	1807.0%	11483.0%	11483.0%
Maximum Loser	-82.0%	-53.0%	-67.0%	-100.0%	-83.0%	-100.0%	-78.0%	-100.0%	-100.0%
Annualized Average Gain	15.4%	14.6%	13.2%	12.0%	12.2%	11.7%	9.1%	6.7%	8.4%
Annualized Median Gain	12.1%	10.6%	9.8%	9.3%	8.2%	7.3%	6.0%	1.1%	3.1%

For detailed information about each predictability rank, please go to GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank

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Financial Gravity (Financial Gravity) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Financial Services » Diversified Financial Services » Financial Gravity Companies Inc (OTCPK:FGCO) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

N/A

Address

2501 Ranch Road 620 South, Suite 110, Lakeway, TX, USA, 78734

Website

https://www.financialgravity.com

Financial Gravity Companies Inc through its subsidiaries helps investment advisors and tax professionals expand their businesses by adding additional services, including their own multi-family office. Financial services professionals are able to leverage Financial Gravity systems, technology, proprietary resources, and deep domain expertise to provide a comprehensive financial service experience to their clients that spans proactive tax planning, retirement and estate planning, wealth management, and risk mitigation. The company's operating segments include FGCO; Forta; FGAM; FGFOS; FGIS; FGEM; and TMN.

Executives

Mark John Williams	director	26420 VIA MALLORCA, CARMEL CA 93923
William Robert Nelson	director	2501 RANCH ROAD 620 SOUTH, SUITE 110, LAKEWAY TX 78734
Gary Joel Nemer	director	800 N. WATTERS ROAD, SUITE 150, ALLEN TX 75013
Jennifer Winters	director	2501 RANCH ROAD 620 SOUTH, SUITE 110, LAKEWAY TX 78734
Scott Christopher Winters	director, officer: CEO, Co-Chairman of the Board	800 N. WATTERS ROAD, SUITE 150, ALLEN TX 75013
Paul O Williams	director, officer: Chief Financial Officer	800 N. WATTERS ROAD. SUITE 120, ALLEN TX 75013
Debra Lynn Buckner	officer: Chief Operating Officer	8505 S. COUNTRY CLUB DRIVE, OKLAHOMA CITY OK 73159
David W. Myers	director	800 N. WATTERS ROAD, SUITE 150, ALLEN TX 75013
Todd Bourgeois	director	800 N. WATTERS ROAD, SUITE 150, ALLEN TX 75013
Michael Lin Ashby	director	800 N. WATTERS RD., SUITE 150, ALLEN TX 75013
John David Pollock	director, 10 percent owner, officer: CEO	800 N. WATTERS ROAD, SUITE 120, ALLEN TX 75013
Ricky J Johnson	officer: Chief Operating Officer	800 N. WATTERS ROAD, SUITE 120, ALLEN TX 75013
George E Crumley	director	800 N. WATTERS ROAD, SUITE 120, ALLEN TX 75013
James F. Reggio	officer: CTO and Chief Mktg Officer	3607 POLO RUN DR., FLOWER MOUND TX 75028
Arthur David Crowley	director, officer: Pres. and Ch. Strategy Officer	800 N. WATTERS ROAD, SUITE 120, ALLEN TX 75013