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.
Ligand Pharmaceuticals 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
Ligand Pharmaceuticals (Ligand Pharmaceuticals) Business Description
Traded in Other Exchanges
Address
3911 Sorrento Valley Boulevard, Suite 110, San Diego, CA, USA, 92121
Ligand Pharmaceuticals Inc is a biopharmaceutical company focused on developing and acquiring technologies that aid in creating medicine. The company has partnerships and license agreements with various pharmaceutical and biotechnology companies. Ligand's business model is based on drug discovery, early-stage drug development, product reformulation, and partnerships. The company's revenue consists of three primary elements: royalties from commercialized products, license and milestone payments, and sale of its trademarked Captisol material.
Executives
| Martine Zimmermann |
director |
C/O LIGAND PHARMACEUTICALS INCORPORATED, 3911 SORRENTO VALLEY BOULEVARD SUITE 110, SAN DIEGO CA 92121 |
| Todd C Davis |
director |
11119 NORTH TORREY PINES ROAD, SUITE 200, LA JOLLA CA 92037 |
| Andrew Reardon |
officer: CHIEF LEGAL OFFICER & |
C/O LIGAND PHARMACEUTICALS INCORPORATED, 3911 SORRENTO VALLEY BLVD, SUITE 110, SAN DIEGO CA 92121 |
| Octavio Espinoza |
officer: Chief Financial Officer |
C/O LIGAND PHARMACEUTICALS INC, 3911 SORRENTO VALLEY BOULEVARD, STE 110, SAN DIEGO CA 92121 |
| John W Kozarich |
director |
10275 SCIENCE CENTER DR, SAN DIEGO CA 92121 |
| Stephen L Sabba |
director |
DORSET MANAGEMENT CORP, 485 UNDERHILL BLVD SUITE 205, SYOSSET NY 11791 |
| John L Higgins |
officer: CEO & President |
11119 NORTH TORREY PINES ROAD, SUITE 200, LA JOLLA CA 92037 |
| Jason Haas |
director |
C/O SYROS PHARMACEUTICALS, INC., 35 CAMBRIDGEPARK DRIVE, CAMBRIDGE MA 02140 |
| Matthew W Foehr |
officer: EVP and COO |
11119 NORTH TORREY PINES RD #200, LA JOLLA CA 92037 |
| John L Lamattina |
director |
81 WYMAN ST, POST OFFICE BOX 9046, WALTHAM MA 02454 |
| Jennifer R. Cochran |
director |
C/O LIGAND PHARMACEUTICALS INC, 3911 SORRENTO VALLEY BOULEVARD, STE 100, SAN DIEGO CA 92121 |
| Charles S Berkman |
officer: Asso. Gen. Counsel, Secretary |
11085 NORTH TORREY PINES ROAD, SUITE 300, LA JOLLA CA 92037 |
| Sunil Patel |
director |
11085 NORTH TORREY PINES RD., SUITE 300, LA JOLLA CA 92037 |
| Goldman Sachs Group Inc |
10 percent owner |
200 WEST STREET, NEW YORK NY 10282 |
| Goldman Sachs & Co. Llc |
10 percent owner |
200 WEST STREET, NEW YORK NY 10282 |
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