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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.
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.
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
Also read:
Part II: What worked in the market from 1998-2008? Part II: Role of ValuationsThank you for viewing the detailed overview of Grindr's Predictability Rank provided by GuruFocus.com. Please click on the following links to see related term pages.
George Arison | director, officer: Chief Executive Officer | 3727 LA DONNA AVENUE, PALO ALTO CA 94306 |
Zage George Raymond Iii | director, 10 percent owner | C/O TIGA ACQUISITION CORP., OFC, LEVEL 40, 10 COLLYER QUAY, SINGAPORE U0 04 |
Kye Chen | officer: Chief Accounting Officer | C/O GRINDR INC., 750 N. SAN VICENTE BLVD., SUITE RE 1400, WEST HOLLYWOOD CA 90069 |
Carman Wong | other: Former Director of Grindr Inc. | C/O TIGA ACQUISITION CORP., OFC, LEVEL 40, 10 COLLYER QUAY, SINGAPORE U0 049315 |
Maggie Lower | director | 5822 NORTH WINTHROP AVENUE, CHICAGO IL 60660 |
Gary I. Horowitz | director | 350 WEST 23RD STREET, APT 6A, NEW YORK NY 10011 |
Daniel Brooks Baer | director | 1443 Q STREET NW, WASHINGTON DC 20009 |
Meghan Stabler | director | 4502 HARVEY PENICK DR, ROUND ROCK TX 78664 |
Austin J Balance | officer: Chief Product Officer | 750 N SAN VICENTE BLVD STE RE1400, WEST HOLLYWOOD CA 90069 |
Lu James Fu Bin | director, 10 percent owner | C/O PLAYTIKA LTD., HACHOSHLIM ST 8, HERZLIYA PITUARCH L3 4672408 |
Ashish Gupta | other: Former Director of Grindr Inc. | C/O TIGA ACQUISITION CORP., OFC, LEVEL 40, 10 COLLYER QUAY, SINGAPORE U0 049315 |
Gearon J Michael Jr | director, 10 percent owner | 3350 RIVERWOOD PARKWAY, SUITE 425, ATLANTA GA 30339 |
Ben Falloon | other: Former Director of Grindr Inc. | C/O TIGA ACQUISITION CORP., OFC, LEVEL 40, 10 COLLYER QUAY, SINGAPORE U0 049315 |
Vandana Mehta-krantz | officer: Chief Financial Officer | SKILLZ INC., C/O CHARLOTTE EDELMAN, P.O. BOX 445, SAN FRANCISCO CA 94104-0445 |
David Christopher Ryan | other: Former Director of Grindr Inc. | C/O AFFILIATED MANAGERS GROUP, INC., 777 SOUTH FLAGLER DRIVE, WEST PALM BEACH FL 33401 |
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