Red Violet (Red Violet) Predictability Rank

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What is Red Violet Predictability Rank?

Not Rated

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.

Red Violet 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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Red Violet (Red Violet) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Technology » Software » Red Violet Inc (NAS:RDVT) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

2KH:Germany

Address

2650 North Military Trail, Suite 300, Boca Raton, FL, USA, 33431

Website

https://www.redviolet.com

Red Violet Inc is a software and services company. It specializes in big data analysis, providing cloud-based, mission-critical information solutions to enterprises in a variety of industries. Through its CORE data fusion platform, it provides mission-critical information about individuals, businesses, and assets.

Executives

Michael Brauser	10 percent owner	4400 BISCAYNE BLVD., SUITE 850, MIAMI FL 33137
Greater Miami Jewish Federation, Inc.	10 percent owner	4200 BISCAYNE BLVD., MIAMI FL 33137
Lisa M. Stanton	director	17064 CROSSGATE DRIVE, JUPITER FL 33477
Peter Benz	director	171 MADISON AVE., 17 FL.,, NEW YORK NY 10016
Frost Phillip Md Et Al	10 percent owner	4400 BISCAYNE BLVD, MIAMI FL 33137-3227
Frost Gamma Investments Trust	10 percent owner	4400 BISCAYNE BLVD, MIAMI FL 33137
Derek Dubner	director, officer: Chief Executive Officer	2650 N. MILITARY TRAIL, SUITE 300, BOCA RATON FL 33431
James Patrick Reilly	officer: President	2650 N. MILITARY TRAIL, SUITE 300, BOCA RATON FL 33431
Daniel Maclachlan	officer: Chief Financial Officer	2650 NORTH MILITARY TRAIL, SUITE 300, BOCA RATON FL 33431
Robert Swayman	director	5022 NW 102 DRIVE, CORAL SPRINGS FL 33076
Ryan Schulke	10 percent owner	C/O IDI, INC., 2650 NORTH MILITARY TRAIL, SUITE 300, BOCA RATON FL 33431
Steven D Rubin	director	OPKO HEALTH, INC., 4400 BISCAYNE BLVD., MIAMI FL 33137
Jinbo Wang	officer: Chief Accounting Officer, other: Principal Accounting Officer	C/O TIGER MEDIA, INC. ROOM 1705, 511 WEIHAI ROAD, JING AN DISTRICT, SHANGHAI F4 200041
Jeffrey Alan Dell	officer: Chief Information Officer	C/O IDI, INC., 2650 NORTH MILITARY TRAIL, SUITE 300, BOCA RATON FL 33431