From this study we have developed the concept of Predictability Rank of businesses.
We have found strong correlations between the Predictability of Businesses and the long term return of stocks, 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
Average Annualized Gain (Jan. 1998- Aug. 2008)
12.1%
10.6%
9.8%
9.3%
8.2%
7.3%
6.0%
1.1%
3.1%
% that are in loss with 10-year holding period
3%
10%
8%
9%
11%
18%
16%
45%
37%
We can clearly see that companies with higher Predictability Rank had much better stock performances.
The possibility of losing money with long term holding period is also greatly reduced.
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