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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.
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.
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 ValuationsThank you for viewing the detailed overview of Nuo Therapeutics's Predictability Rank provided by GuruFocus.com. Please click on the following links to see related term pages.
Charles E Sheedy | 10 percent owner | TWO HOUSTON CENTER, SUITE 2907, HOUSTON TX 77010 |
David Emerson Jorden | director, officer: CEO, CFO | 2635 TECHNOLOGY FOREST BLVD., THE WOODLANDS TX 77381 |
Lawrence Atinsky | director | 780 THIRD AVENUE, 37TH FLOOR, NEW YORK NY 10017 |
C Eric Winzer | director | |
Paul Mintz | director | C/O NUO THERAPEUTICS INC., 207A PERRY PARKWAY, SUITE 1, GAITHERSBURG MD 20877 |
Peter Clausen | officer: CSO | 11204 JEFFRO COURT, IJAMSVILLE MD 21754 |
Scott M. Pittman | director | 3683 JOHN NASH BLVD., BLUEFIELD WV 24701 |
Boyalife Investment Fund I, Inc. | 10 percent owner | 2453 S. ARCHER AVE., SUITE B, CHICAGO IL 60616 |
Dean Tozer | officer: CHIEF COMMERCIAL OFFICER | C/O ADVANCED BIOHEALING, INC., 36 CHURCH LANE, WESTPORT CT 06880 |
Steven A Shallcross | officer: SEE REMARKS | C/O ELYS GAME TECHNOLOGY CORP., 130 ADELAIDE STREET WEST, SUITE 701, TORONTO A6 M5H2K4 |
Aldagen Holdings, Llc | 10 percent owner, other: May be part of a 13(d) group | C/O THOMAS A. ALLEN, ESQ., 4101 LAKE BOONE TRAIL, STE 300, RALEIGH NC 27607 |
Kathryne Carr | 10 percent owner, other: May be part of a 13(d) group | 315 OLD IVY WAY, SUITE 101, CHARLOTTESVILLE VA 22903 |
William W Brooke | 10 percent owner, other: May be part of a 13(d) group | 2100 THIRD AVENUE NORTH, SUITE 600, BIRMINGHAM AL 35203 |
Guercio Joseph Del | director | C/O CLARK INVESTMENTS, 7500 OLD GEORGETOWN ROAD, SUITE 620, BETHESDA MD 20814 |
B. Jefferson Clark | 10 percent owner, other: May be part of a 13(d) group | C/O ALDAGEN, INC., 2810 MERDIAN PARKWAY, SUITE 148, DURHAM NC 27713 |
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