3 (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.
MGP Ingredients 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
MGP Ingredients (MGP Ingredients) Business Description
Traded in Other Exchanges
Address
100 Commercial Street, P.O. Box 130, Atchison, KS, USA, 66002
MGP Ingredients Inc is a producer and supplier of premium distilled spirits and specialty wheat protein and starch food ingredients. MGP also produces high-quality industrial alcohol for use in both food and non-food applications. It operates in three segments: Distillery Solutions, Branded Spirits Segment, and Ingredient Solutions. Distillery Solutions provides distillery co-products, such as distillers feed, fuel grade alcohol, and corn oil: and warehouse services, including barrel put away, storage, and retrieval services. It derives most of its revenue from the Distillery Solutions segment.
Executives
| Karen Seaberg |
director |
20073 266TH ROAD, #266, ATCHISON KS 66002 |
| Mingus Lori L.s. |
director |
4123 HWY 49, PERRY KS 66073 |
| Brandon Gall |
officer: VP and Chief Financial Officer |
6142 REINHARDT, FAIRWAY KS 66205 |
| David Colo |
director |
C/O DIAMOND FOODS, INC., 600 MONTGOMERY STREET, 13TH FLOOR, SAN FRANCISCO CA 94111 |
| Catherine N. Lux |
10 percent owner, other: Member of 10% holder group |
5050 KEMPER AVENUE, ST. LOUIS MO 63139 |
| Cnl 2013 Irrevocable Trust Dated April 2, 2013 |
10 percent owner, other: Member of 10% holder group |
212 S. MAIN AVENUE, SUITE 145, SIOUX FALLS SD 57104 |
| Ann S. Lux 2005 Irrevocable Trust Fbo Paul S. Lux Dated September 16, 2005 |
10 percent owner, other: Member of 10% holder group |
5050 KEMPER AVENUE, ST. LOUIS MO 63169 |
| Paul S. Lux |
10 percent owner, other: Member of 10% holder group |
5050 KEMPER AVENUE, ST. LOUIS MO 63139 |
| Caroline L. Kaplan Revocable Trust Dated December 16, 2009 |
10 percent owner, other: Member of 10% holder group |
5050 KEMPER AVENUE, ST. LOUIS MO 63139 |
| Caroline Lux Kaplan |
10 percent owner, other: Member of 10% holder group |
5050 KEMPER AVENUE, ST. LOUIS MO 63139 |
| Donn S. Lux |
director, 10 percent owner, other: Member of 10% holder group |
5050 KEMPER AVENUE, ST. LOUIS MO 63139 |
| Luxco 2017 Irrevocable Trust Dated June 19, 2017 |
10 percent owner |
5050 KEMPER AVENUE, ST. LOUIS MO 63139 |
| Neha J Clark |
director |
C/O LIFEWAY FOODS, 6431 OAKTON STREET, MORTON GROVE IL 60053 |
| Kevin Rauckman |
director |
1200 E 151 ST ST, OLATHE KS 66062 |
| Todd B. Siwak |
director |
100 COMMERCIAL STREET, P.O. BOX 130, ATCHISON KS 66002 |
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