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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 Singing Machine Co's Predictability Rank provided by GuruFocus.com. Please click on the following links to see related term pages.
Jay B Foreman | director | 6301 NW 5TH WAY,, SUITE 2900, FORT LAUDERDALE FL 33309 |
Stingray Group Inc. | 10 percent owner | 730 WELLINGTON STREET, MONTREAL A8 H3C 1T4 |
Ault Milton C Iii | 10 percent owner | 11411 SOUTHERN HIGHLANDS PARKWAY, SUITE 240, LAS VEGAS NV 89141 |
Bitnile Holdings, Inc. | 10 percent owner | 11411 SOUTHERN HIGHLANDS PARKWAY, SUITE 240, LAS VEGAS NV 89141 |
Henry Carl Nisser | director | 100 PARK AVENUE, SUITE 1658A, NEW YORK NY 10017 |
James Michael Turner | director | 1800 HICKORY RIDGE DRIVE, WAXHAW NC 28173 |
Kenneth S Cragun | director | 3775 CHIPPEWA CIRCLE, CORONA CA 92881 |
Mathieu Peloquin | director | 730 WELLINGTON STREET, MONTREAL A8 H3C 1T4 |
Eric Boyko | 10 percent owner | 730 WELLINGTON STREET, MONTREAL A8 H3C 1T4 |
Bernardo Melo | officer: VP Sales | 6601 LYONS ROAD, BUILDING A 7, COCONUT CREEK FL 33073 |
Joseph Kling | director | 5846 NW 24TH AVENUE (UNIT #203), BOCA RATON FL 33496 |
Lau Sak Hong Aka Philip Lau | director | SHING DAO INDUSTRIAL BUILDING SECURITIES, 232 ABERDEEN MAIN ROAD 5TH FLO K3 00000 |
Gary Kevin Atkinson | officer: Secretary | 1266 S MILITARY TRAIL, APT 5314, DEERFIELD BEACH FL 33442 |
Carol Lau | director | THE SINGING MACHINE COMPANY INC, 6601 LYONS ROAD BUILDING A 7, COCONUT CREEK FL 33073 |
Anton Handal | officer: CEO | 425 TYRONE STREET, EL CAJON CA 92020 |
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