What is B. Riley Financial Predictability Rank?
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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.
B. Riley Financial 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
Also read:
Part II: What worked in the market from 1998-2008? Part II: Role of Valuations
Part III: Intrinsic Value, Discounted Cash Flow and Margin of Safety
B. Riley Financial (B. Riley Financial) Business Description
Traded in Other Exchanges
Address
11100 Santa Monica Boulevard, Suite 800, Los Angeles, CA, USA, 90025
B. Riley Financial Inc is a diversified financial services company. The company through its subsidiaries offers investment banking and financial services to corporate, institutional and high net worth clients and also asset disposition, valuation and appraisal and capital advisory services to retail, wholesale, institutional, lenders, capital providers, private equity investors, and professional services firms in United States, Canada, and Europe. It also provides internet access and subscription services. The reportable operating segments of the company include Capital Markets, Wealth Management, Financial Consulting, Auction and Liquidation, Communications, and Consumer segment.
Executives
| Kelleher Thomas J /adv |
officer: CEO of B. Riley Capital Market |
C/O B. RILEY FINANCIAL, INC., 21255 BURBANK BLVD, SUITE 400, WOODLAND HILLS CA 91367 |
| Renee E Labran |
director |
130 WEST UNION STREET, C/O IDEALAB, PASADENA CA 91103 |
| Andrew Moore |
officer: CEO of B. Riley FBR, Inc. |
C/O B. RILEY FINANCIAL, INC., 21255 BURBANK BLVD., SUITE 400, WOODLAND HILLS CA 91367 |
| Robert L Antin |
director |
|
| Tamara Sue Brandt |
director |
C/O B. RILEY FINANCIAL, INC., 11100 SANTA MONICA BLVD., SUITE 800, LOS ANGELES CA 90025 |
| Bryant R Riley |
director |
C/O B. RILEY FINANCIAL, INC., 21255 BURBANK BLVD, SUITE 400, WOODLAND HILLS CA 91367 |
| Randall E Paulson |
director |
|
| D Agostino Robert P |
director |
21255 BURBANK BOULEVARD, SUITE 400, WOODLAND HILLS CA 91367 |
| Michael Joseph Sheldon |
director |
C/O ALDILA, INC., 14145 DANIELSON ST. STE B, POWAY CA 92064 |
| Daniel Asher |
10 percent owner |
111 W JACKSON BLVD, 20TH FL, CHICAGO IL 60604 |
| Kenneth M Young |
officer: President |
C/O B. RILEY FINANCIAL, INC., 21255 BURBANK BLVD., SUITE 400, WOODLAND HILLS CA 91367 |
| Mikel H Williams |
director |
21255 BURBANK BOULEVARD, SUITE 400, WOODLAND HILLS CA 91367 |
| Phillip Ahn |
officer: CFO and COO |
21255 BURBANK BOULEVARD, SUITE 400, WOODLAND HILLS CA 91367 |
| Alan N Forman |
officer: EVP, General Counsel, Sec |
21255 BURBANK BOULEVARD, SUITE 400, WOODLAND HILLS CA 91367 |
| Todd D. Sims |
director |
C/O B. RILEY FINANCIAL, INC., 21255 BURBANK BLVD., SUITE 400, WOODLAND HILLS CA 91367 |
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