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.
American Public Education 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
American Public Education (American Public Education) Business Description
Traded in Other Exchanges
N/A
Address
111 West Congress Street, Charles Town, WV, USA, 25414
American Public Education Inc provides online and on-campus postsecondary education including various undergraduate and graduate degree programs. The fields of study include business administration, health science, technology, criminal justice, education, liberal arts, national security, military studies, intelligence, and homeland security. There are three reporting segments: the American Public Education segment which is the key revenue generator; the Rasmussen University Segment and the Hondros College of Nursing segment. The revenue is generated from net course registrations and enrollment, tuition rate, net tuition, and other fees.
Executives
| Barbara Kurshan |
director |
C/O AMERICAN PUBLIC EDUCATION, 111 W. CONGRESS STREET, CHARLES TOWN WV 25414 |
| Craig S Macgibbon |
officer: EVP, Chief Information Officer |
C/O UIL HOLDINGS CORPORATION, 157 CHURCH STREET, NEW HAVEN CT 06506 |
| Thomas Beckett |
officer: SVP, General Counsel |
111 W. CONGRESS STREET, CHARLES TOWN WV 25414 |
| Paula R Singer |
officer: Acting President, Rasmussen |
C/O AMERICAN PUBLIC EDUCATION, INC., 111 WEST CONGRESS STREET, CHARLES TOWN WV 25414 |
| 325 Master Fund Lp |
other: See Footnotes |
757 THIRD AVENUE, 20TH FLOOR, NEW YORK NY 10017 |
| Daniel M. Friedberg |
other: See Footnotes |
C/O SAGARD CAPITAL, 325 GREENWICH AVENUE, GREENWICH CT 06830 |
| 325 Capital Llc |
other: See Footnotes |
757 THIRD AVENUE, 20TH FLOOR, NEW YORK NY 10017 |
| Michael David Braner |
director, other: See Footnotes |
200 PARK AVENUE, 17TH FLOOR, NEW YORK NY 10016 |
| Anil K Shrivastava |
other: See Footnotes |
200 PARK AVENUE, 17TH FLOOR, NEW YORK NY 10016 |
| 325 Capital Gp, Llc |
other: See Footnotes |
757 THIRD AVENUE, 20TH FLOOR, NEW YORK NY 10017 |
| Robinson William G Jr |
director |
3150 SABRE DRIVE, SOUTHLAKE TX 76092 |
| Granetta B. Blevins |
director |
C/O AMERICAN PUBLIC EDUCATION, INC., 111 WEST CONGRESS STREET, CHARLES TOWN WV 25414 |
| Harry T Wilkins |
officer: EVP, Strategy, Growth & Innov. |
111 W. CONGRESS STREET, CHARLES TOWN WV 25414 |
| Anna M. Fabrega |
director |
C/O AMERICAN PUBLIC EDUCATION, INC., 111 WEST CONGRESS STREET, CHARLES TOWN WV 25414 |
| Eric C. Andersen |
director |
C/O AMERICAN PUBLIC EDUCATION, INC., 111 W. CONGRESS STREET, CHARLES TOWN WV 25414 |
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