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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.
Stratus Properties 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
Stratus Properties (Stratus Properties) Business Description
Traded in Other Exchanges
Address
212 Lavaca Street, Suite 300, Austin, TX, USA, 78701
Stratus Properties Inc is a diversified real estate company operating in the United States. It is engaged in the acquisition, entitlement, development, management, operation and sale of commercial, multi- and single-family residential real estate properties, located in the Austin Texas area and other select markets in Texas. It operates its business through two segments namely, Real Estate Operations and Leasing Operations.
Executives
| Rhone Neville L. Jr. |
director |
212 LAVACA STREET, SUITE 300, AUSTIN TX 78701 |
| Kate Henriksen |
director |
212 LAVACA STREET, SUITE 300, AUSTIN TX 78701 |
| Laurie L. Dotter |
director |
3615 WEST LAWTHER DRIVE, DALLAS TX 75214 |
| Michael D Madden |
director |
98 SAN JACINTO BLVD, STE 220, AUSTIN TX 78701 |
| James Joseph |
director |
|
| Charles W. Porter |
director |
212 LAVACA STREET, SUITE 300, AUSTIN TX 78701 |
| James Leslie |
director |
5924 ROYAL LANE, SUITE 250, DALLAS TX 75230 |
| Erin D Pickens |
officer: Senior VP & CFO |
1775 BROADWAY 23RD FLR, NEW YORK NY 10019 |
| Armstrong William H Iii |
director, officer: Chair of Board, President, CEO |
98 SAN JACINTO BLVD, STE 220, AUSTIN TX 78701 |
| Oasis Investments Ii Master Fund Ltd. |
10 percent owner |
UGLAND HOUSE PO BOX 309, GRAND CAYMAN E9 KY1-1104 |
| Ella Gendel |
director |
300 WEST 6TH STREET, SUITE 1550, AUSTIN TX 78701 |
| Carl E Berg |
10 percent owner, other: See Remarks |
C/O BERG & BERG DEVELOPERS, 10050 BANDLEY DR, CUPERTINO CA 95014 |
| Seth Fischer |
10 percent owner |
C/O OASIS MANAGEMENT (HONG KONG) LLC, 21/F MAN YEE BUILDING, 68 DES VOEUX ROAD, CENTRAL K3 |
| Oasis Management Co Ltd. |
10 percent owner |
4TH FLOOR ANDERSON SQUARE,, 64 SHEDDEN ROAD, P.O. BOX 10324, GRAND CAYMAN E9 KY-1103 |
| David M Dean |
other: See Remarks |
16200 ADDISON ROAD, SUITE 220, ADDISON TX 75001 |
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