Western Asset Mortgage Capital (Western Asset Mortgage Capital) Predictability Rank

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What is Western Asset Mortgage Capital 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.

Western Asset Mortgage Capital 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

Western Asset Mortgage Capital Predictability Rank Related Terms

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Western Asset Mortgage Capital (Western Asset Mortgage Capital) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Real Estate » REITs » Western Asset Mortgage Capital Corp (NYSE:WMC) » Definitions » Predictability Rank

Comparable Companies

LOAN ACR CHMI EARN LFT MITT AJX AAIC SACH SEVN NLY STWD AGNC RITM BXMT ABR RC CMTG ARI LADR

Traded in Other Exchanges

N/A

Address

385 East Colorado Boulevard, Pasadena, CA, USA, 91101

Website

https://www.westernassetmcc.com

Western Asset Mortgage Capital Corp is a specialty financial REIT company managing diversified mortgage-market investment portfolio. The corporation is externally managed by Western Asset Management Company and emphasizes on undervalued assets. It focuses on investing in, financing and managing majorly residential mortgage-backed securities, while its core focus is on Agency RMBS. The company aims to provide attractive risk-adjusted returns to its investors over the long-term across market conditions and economic cycles.

Executives

Robert W. Lehman	officer: Chief Financial Officer	C/O WESTERN ASSET MORTGAGE CAPITAL CORP, 385 EAST COLORADO BOULEVARD, PASADENA CA 91101
Sean O. Johnson	officer: Deputy CIO	C/O WESTERN ASSET MORTGAGE CAPITAL CORP., 385 EAST COLORADO BOULEVARD, PASADENA CA 91101
Greg E. Handler	officer: Chief Investment Officer	C/O WESTERN ASSET MORTGAGE CAPITAL CORP., 385 EAST COLORADO BOULEVARD, PASADENA CA 91101
Elliott Neumayer	officer: Chief Operating Officer	385 EAST COLORADO BLVD, PASADENA CA 91101
Bonnie M. Wongtrakool	director, officer: Chief Executive Officer	C/O WESTERN ASSET MORTGAGE CAPITAL CORP, 385 EAST COLORADO BOULEVARD, PASADENA CA 91101
Lisa Meyer	officer: Chief Financial Officer	C/O NORTHSTAR REALTY FINANCE CORP., 399 PARK AVENUE, 18TH FLOOR, NEW YORK NY 10022
Morgan Donald E Iii	10 percent owner	C/O BRIGADE CAPITAL MANAGEMENT, LLC, 717 FIFTH AVENUE, SUITE 1301, NEW YORK NY 10022
Brigade Capital Management, Lp	10 percent owner	399 PARK AVENUE, 16TH FLOOR, NEW YORK NY 10022
Brigade Capital Management Gp, Llc	10 percent owner	399 PARK AVENUE, 16TH FLOOR, NEW YORK NY 10022
Lisa G Quateman	director	C/O WESTERN ASSET MORTGAGE CAPITAL CORP., 385 EAST COLORADO BOULEVARD, PASADENA CA 91101
Jennifer Murphy	officer: President and CEO	LEGG MASON, INC., 100 INTERNATIONAL DRIVE, BALTIMORE MD 21202
Harris Trifon	officer: Chief Investment Officer	C/O WESTERN ASSET MORTGAGE CAPITAL CORP., 385 EAST COLORADO BOULEVARD, PASADENA CA 91101
Dennis Joseph Mcnamara	officer: Co-Chief Investment Officer	385 E. COLORADO BLVD., PASADENA CA 91101
M Christian Mitchell	director	355 S. GRAND AVE, SUITE 1750, LOS ANGELES CA 90071
Richard W Roll	director	C/O WESTERN ASSET MORTGAGE CAPITAL CORP, 385 EAST COLORADO BOULEVARD, PASADENA CA 91101