What is Block Predictability Rank?
1 (5)
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.
Block 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
Block (SQ) Business Description
Traded in Other Exchanges
Address
1455 Market Street, Suite 600, San Francisco, CA, USA, 94103
Founded in 2009, Block provides payment services to merchants, along with related services. The company also launched Cash App, a person-to-person payment network. In 2022, Square's payment volume was a little over $200 million.
Executives
| Brian Grassadonia |
officer: Cash App Lead |
1455 MARKET STREET, SUITE 600, SAN FRANCISCO CA 94103 |
| Amrita Ahuja |
officer: Chief Financial Officer |
1455 MARKET STREET, SUITE 600, SAN FRANCISCO CA 94103 |
| Chrysty Esperanza |
officer: Interim Counsel Lead |
1955 BROADWAY, SUITE 600, OAKLAND CA 94612 |
| Ajmere Dale |
officer: Chief Accounting Officer |
1455 MARKET STREET, SUITE 600, SAN FRANCISCO CA 94103 |
| Roelof Botha |
director |
C/O SEQUOIA CAPITAL, 2800 SAND HILL RD, SUITE 101, MENLO PARK CA 94025 |
| Alyssa Henry |
officer: Seller Lead |
1455 MARKET STREET, SUITE 600, SAN FRANCISCO CA 94103 |
| Lawrence Henry Summers |
director |
JOHN F. KENNEDY SCHOOL OF GOVERNMENT, MAILBOX 8, 79 JFK STREET, CAMBRIDGE MA 02138 |
| Neha Narula |
director |
1955 BROADWAY, SUITE 600, OAKLAND CA 94612 |
| Sivan Whiteley |
officer: Gen. Counsel & Corp. Secretary |
1455 MARKET STREET, SUITE 600, SAN FRANCISCO CA 94103 |
| Sharon Rothstein |
director |
C/O YELP INC., 350 MISSION STREET, 10TH FLOOR, SAN FRANCISCO CA 94105 |
| Mckelvey James Morgan Jr. |
director, 10 percent owner |
2645 SOUTH BAYSHORE #802, MIAMI FL 33133 |
| Carter Shawn Corey |
director |
C/O S. CARTER ENTERPRISES, LLC, 1411 BROADWAY, NEW YORK NY 10018 |
| Jack Dorsey |
director, 10 percent owner, officer: President, CEO & Chairman |
C/O TWITTER INC, 1355 MARKET STREET SUITE 900, SAN FRANCISCO CA 94103 |
| Mary G Meeker |
director |
2750 SAND HILL ROAD, MENLO PARK CA 94025 |
| David A Viniar |
director |
C/O GOLDMAN SACHS GROUP INC, 200 WEST STREET, NEW YORK NY 10282 |
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