S&P Global (S&P Global) Predictability Rank

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What is S&P Global 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.

S&P Global 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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S&P Global (S&P Global) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Financial Services » Capital Markets » S&P Global Inc (NYSE:SPGI) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

SPGI:Mexico MHL:Germany MHL:Germany MHL:Germany SPGI34:Brazil

Address

55 Water Street, New York, NY, USA, 10041

Website

https://www.spglobal.com

S&P Global provides data and benchmarks to capital and commodity market participants. Its ratings business is the largest credit rating agency in the world and S&P's largest segment by profitability. S&P's largest segment by revenue is market intelligence, which provides desktop, data and advisory solutions, enterprise solutions, and credit/risk solutions mostly in the financial-services industry. S&P's other segments include commodity insights (Platts and other data), mobility (Carfax), and indexes.

Executives

Douglas L. Peterson	director, officer: CEO & President	MCGRAW HILL FINANCIAL, 1221 AVENUE OF THE AMERICAS, NEW YORK NY 10020
Saugata Saha	officer: President, S&P Global Platts	55 WATER STREET, NEW YORK NY 10041
Ewout L Steenbergen	officer: EVP & Chief Financial Officer	230 PARK AVENUE, NEW YORK NY 10169
Adam Jason Kansler	officer: President, Market Intelligence	C/O MARKIT LTD, 4TH FL, ROPEMAKER PLACE, 25 ROPEMAKER STREET, LONDON X0 EC2Y 9LY
Dimitra Manis	officer: Chief People Officer	55 WATER STREET, S&P GLOBAL, 45TH FLOOR, NEW YORK NY 10041
Steven J Kemps	officer: EVP, General Counsel	2515 MCKINNEY AVENUE, SUITE 1200, DALLAS TX 75201
Sally Moore	officer: EVP, Strategic Alliances	55 WATER STREET, NEW YORK NY 10041
Deborah D Mcwhinney	director	PO BOX 40 EAST BROADWAY, BUTTE MT 59701
Robert P Kelly	director	ONE MELLON CENTER, PITTSBURGH PA 15258-0001
Christopher Craig	officer: SVP and Controller	55 WATER STREET, LEGAL DEPARTMENT, NEW YORK NY 10041
Martina Cheung	officer: EMD, Head of Global Risk Svcs	55 WATER STREET, NEW YORK NY 10020
John L Berisford	officer: President, S&P Ratings	C/O THE PEPSI BOTTLING GROUP, INC., ONE PEPSI WAY, SOMERS NY 10589
Nancy Luquette	officer: SVP, Chief Risk & Audit Exec	S&P GLOBAL, 55 WATER STREET, NEW YORK NY 10041
Jacques Esculier	director	C/O AMERICAN STANDARD COMPANIES INC, ONE CENTENNIAL AVENUE, PISCATAWAY NJ 08855
Gay Huey Evans	director	SHIPPING & RECEIVING CENTER, 16930 PARK ROW DR., HOUSTON TX 77084