The Hanover Insurance Group (The Hanover Insurance Group) Predictability Rank

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What is The Hanover Insurance Group Predictability Rank?

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.

The Hanover Insurance Group 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

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The Hanover Insurance Group (The Hanover Insurance Group) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Financial Services » Insurance » The Hanover Insurance Group Inc (NYSE:THG) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

AF4:Germany

Address

440 Lincoln Street, Worcester, MA, USA, 01653

Website

https://www.hanover.com

The Hanover Insurance Group Inc is a holding company whose primary business is offering property and casualty insurance products and services. The company markets itself through independent agents and brokers in the United States while conducting business internationally through a wholly owned subsidiary, Chaucer Holdings Limited, domiciled in the United Kingdom. The company conducts business operations through three operating segments: Commercial Lines, Personal Lines and Other. The company operates an investment portfolio that is primarily exposed to fixed-income securities.

Executives

Jane D Carlin	director	C/O PHH CORPORATION, 3000 LEADENHALL ROAD, MT. LAUREL NJ 08054
David John Lovely	officer: Executive Vice President	440 LINCOLN STREET, WORCESTER MA 01653
Mark Joseph Welzenbach	officer: Senior Vice President	C/O THE HANOVER INSURANCE GROUP, INC., 440 LINCOLN STREET (S-316), WORCESTER MA 01653
Elizabeth A Ward	director	440 LINCOLN STREET, WORCESTER MA 01653
Francisco Aristeguieta	director	388 GREENWICH STREET, 17TH FLOOR, NEW YORK NY 10013
John C Roche	officer: Vice President	C/O THE HANOVER INSURANCE GROUP, INC., 440 LINCOLN STREET, WORCESTER MA 01653
Warren E Barnes	officer: Vice President of Subsidiary	THE HANOVER INSURANCE GROUP, INC., 440 LINCOLN STREET, WORCESTER MA 01653
Richard W Lavey	officer: Vice President of Subsidiary	THE HANOVER INSURANCE GROUP, INC., 440 LINCOLN STREET, WORCESTER MA 01653
Jeffrey M Farber	officer: Executive Vice President	C/O THE HANOVER INSURANCE GROUP, 440 LINCOLN STREET, WORCESTER MA 01653
Willard T Lee	officer: Senior Vice President	440 LINCOLN STREET, WORCESTER MA 01653
Bryan J Salvatore	officer: Executive Vice President	440 LINCOLN STREET, N435, WORCESTER MA 01653
J Paul Condrin	director	440 LINCOLN STREET, WORCESTER MA 01653
Bunting Theodore H Jr	director	P. O. BOX 61000, NEW ORLEANS LA 70161
Martin P Hughes	director	C/O HUB INTERNATIONAL LIMITED, 55 EAST JACKSON BLVD, CHICAGO IL 60604
Dennis Francis Kerrigan	officer: Executive Vice President	440 LINCOLN STREET, E-10, WORCESTER MA 01653