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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 Thor Industries's Predictability Rank provided by GuruFocus.com. Please click on the following links to see related term pages.
W. Todd Woelfer | officer: Sr. VP, Gen Counsel & Sec. | PO BOX 3300, ELKHART IN 46515 |
Kenneth D Julian | officer: VP of Admin. and HR | 3080 WINDSOR CT., ELKHART IN 46514 |
Peter Busch Orthwein | director, officer: Exec. Chairman of the Board | ONE LAGAYETTE PLACE, GREENWICH CT 06830 |
James L Ziemer | director | C/O HARLEY DAVIDSON, 3700 W. JUNEAU AVE, MILWAUKEE WI 53208 |
Amelia Huntington | director | C/O THOR INDUSTRIES, INC., 601 EAST BEARDSLEY AVE., ELKHART IN 46514-3305 |
Trevor Q. Gasper | officer: VP, General Counsel and Sec. | 601 EAST BEARDSLEY AVE., ELKHART IN 46514 |
Laurel Hurd | director | C/O NEWELL BRANDS INC., 6655 PEACHTREE DUNWOODY ROAD, ATLANTA GA 30328 |
Christina Hennington | director | 1000 NICOLLET MALL, MINNEAPOLIS MN 55403 |
J Allen Kosowsky | director | C/O THOR INDUSTRIES, INC., 419 WEST PIKE STREET, JACKSON CENTER OH 45334-0629 |
Kelley William J. Jr | director | USG CORPORATION, 550 WEST ADAMS STREET, CHICAGO IL 60661 |
Josef Hjelmaker | officer: Chief Innovation Officer | C/O THOR INDUSTRIES, INC., 601 E. BEARDSLEY AVE., ELKHART IN 46514-3305 |
Christopher J Klein | director | 520 LAKE COOK ROAD, DEERFIELD IL 60015 |
Jan Suwinski | director | 9450 SEWARD RD, C/O OHIO CASUALTY GROUP, FAIRFIELD OH 45014 |
Robert W Martin | director, officer: Chief Exec. Officer & Pres. | C/O KEYSTONE RV COMPANY, 2642 HACKBERRY DRIVE, GOSHEN IN 46526 |
Troy James | officer: SVP International Operations | C/O THOR INDUSTRIES, INC., 601 EAST BEARDSLEY AVENUE, ELKHART IN 46514-3305 |
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