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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 Bolt Biotherapeutics's Predictability Rank provided by GuruFocus.com. Please click on the following links to see related term pages.
William P. Quinn | officer: Chief Financial Officer | SUNESIS PHARMACEUTICALS, INC., 395 OYSTER POINT BOULEVARD, SUITE 400, SOUTH SAN FRANCISCO CA 94080 |
Edgar Engleman | director | 575 HIGH STREET, STE 201, PALO ALTO CA 94301 |
Vivo Capital Fund Viii, L.p. | 10 percent owner | 505 HAMILTON AVENUE, SUITE 200, PALO ALTO CA 94301 |
Laura Berner | director | C/O BOLT BIOTHERAPEUTICS, INC., 900 CHESAPEAKE DRIVE, REDWOOD CITY CA 94063 |
Novo Holdings A/s | 10 percent owner | TUBORG HAVNEVEJ 19, HELLERUP G7 2900 |
James Healy | director | 3000 SAND HILL ROAD, 4-250, MENLO PARK CA 94025 |
Brian O'callaghan | director | 550 HILLS DRIVE, 3RD FLOOR, BEDMINSTER NJ 07921 |
Frank D. Lee | director | C/O FORMA THERAPEUTICS HOLDINGS, INC., 500 ARSENAL STREET, SUITE 100, WATERTOWN MA 02472 |
Kathleen Laporte | director | |
Miller Richard A Md | director | PHARMACYCLICS INC, 995 E ARQUES AVE, SUNNYVALE CA 94085-4521 |
Mahendra Shah | director | 2250 HOLCOMBE BLVD, HOUSTON TX 77030 |
Grant Yonehiro | officer: Chief Business Officer | C/O MAXYGEN, INC., 515 GALVESTON DRIVE, REDWOOD CITY CA 94063 |
Randall C Schatzman | director, officer: Chief Executive Officer | 11804 NORTH CREEK PARKWAY SOUTH, BOTHELL WA 98011 |
David Dornan | officer: Chief Scientific Officer | C/O BOLT BIOTHERAPEUTICS, INC., 640 GALVESTON DRIVE, REDWOOD CITY CA 94063 |
Edith A. Perez | officer: Chief Medical Officer | C/O BOLT BIOTHERAPEUTICS, INC., 640 GALVESTONE DRIVE, REDWOOD CITY CA 94063 |
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