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.
GuruFocus conducted a back test study of Warren Buffett's strategy of "buying good companies at fair prices" for the years from 1998-2008.
Northwest Pipe Co 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.
Northwest Pipe Co Predictability Rank Related Terms
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Northwest Pipe Co (Northwest Pipe Co) Business Description
Northwest Pipe Co is a manufacturer of water-related infrastructure products. The company has two operating segments; Engineered Steel Pressure Pipe segment manufactures large-diameter, high-pressure steel pipeline systems for use in water infrastructure applications, which are related to drinking water systems. These products are also used for hydroelectric power systems, wastewater systems, seismic resiliency, and other applications, and Precast Infrastructure and Engineered Systems segment manufacture stormwater and wastewater technology products, high-quality precast and reinforced concrete products, including manholes, box culverts, vaults, and catch basins, pump lift stations, oil water separators, biofiltration, and other environmental and engineered solutions.
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