What is Fidus Investment Predictability Rank?
2.5 (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.
Fidus Investment 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
Fidus Investment (Fidus Investment) Business Description
Traded in Other Exchanges
Address
1603 Orrington Avenue, Suite 1005, Evanston, IL, USA, 60201
Fidus Investment Corp is an externally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company. The company provides customized debt and equity financing solutions to lower middle-market companies, which management generally defines as U.S. based companies with revenues between $10 million and $150 million. The company invests in companies that possess some or all of the following attributes: predictable revenues; positive cash flows; defensible market positions; diversified customer and supplier bases; and management teams with operating discipline.
Executives
| Charles D Hyman |
director |
224 PONTE VEDRA PARK DRIVE, SUITE 200, PONTE VEDRA BEACH FL 32082 |
| Edward H Ross |
director, officer: See Remarks |
|
| Shelby E Sherard |
officer: See Remarks |
2215 SANDERS ROAD, SUITE 400, NORTHBROOK IL 60062 |
| Edward X. Tune |
director |
C/O FIDUS INVESTMENT CORPORATION, 1603 ORRINGTON AVENUE, SUITE 1005, EVANSTON IL 60201 |
| Anstiss Raymond L. Jr. |
director |
1603 ORRINGTON AVENUE, SUITE 820, EVANSTON IL 60201 |
| Thomas Charles Lauer |
director, officer: President |
1919 PENNSYLVANIA AVENUE, NW, SUITE 300, WASHINGTON DC 20006 |
| Cary L Schaefer |
officer: See Remarks |
1603 ORRINGTON AVE, STE 820, EVANSTON IL 60201 |
| John A. Mazzarino |
director |
1603 ORRINGTON AVENUE, SUITE 820, EVANSTON IL 60201 |
| Pinebridge Secondary Partners Ii Holdings, L.p. |
10 percent owner |
399 PARK AVENUE, 4TH FLOOR, NEW YORK NY 10022 |
| Pinebridge Secondary Partners Ii Gp, L.p. |
10 percent owner |
399 PARK AVENUE, 4TH FLOOR, NEW YORK NY 10022 |
| Charles G Phillips |
director |
|
| Wayne F Robinson |
director |
1603 ORRINGTON AVENUE, SUITE 820, EVANSTON IL 60201 |
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