FACO (First Acceptance) Predictability Rank

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What is First Acceptance 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.

First Acceptance 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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First Acceptance Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Financial Services » Insurance » First Acceptance Corp (OTCPK:FACO) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

N/A

Address

3813 Green Hills Village Drive, Nashville, TN, USA, 37215

Website

https://www.firstacceptance.com

First Acceptance Corp is engaged in the financial services sector. It is principally a retailer, servicer, and underwriter of non-standard personal automobile insurance. The company's operations generate revenue from selling non-standard personal automobile insurance products and related products in the United States. Its suite of products comprises auto insurance, renters, motorcycle, roadside assistance, and hospital insurance. the company also operates a real estate and corporate segment, which consists of the activities related to the disposition of foreclosed real estate held for sale, interest expenses associated with all debt, and other general corporate overhead expenses.

Executives

Rhodes R Bobbitt	director	4500 ROLAND, #905, DALLAS TX 75219
Kenneth D Russell	director	200 CRESCENT COURT, SUITE 1350, DALLAS TX 75201
Tom C Nichols	director	4500 MERCANTILE PLAZA DRIVE, SUITE 300, FORT WORTH TX 76137
Brent J Gay	officer: Chief Financial Officer	3813 GREEN HILLS VILLAGE DRIVE, NASHVILLE TN 37215
Olson Lyndon L Jr	director	3812 GREENLEAF DRIVE, WACO TX 76710
Jeremy B Ford	director
Mark A Kelly	officer: Interim CEO & President	5722 WEST HANOVER, DALLAS TX 75209
Joseph S. Borbely	officer: President	1572 VANDAGRIFF WAY, CORONA CA 92883
John R Barnett	officer: Sr. Vice President of Finance	111 CONGRESSIONAL BLVD, STE 500, CARMEL IN 46032
Daniel L. Walker	officer: Sr. VP of Operations	3322 WEST END AVENUE, NASHVILLE TN 37203
Harrison Thomas Marshall Jr	director, 10 percent owner, officer: Exec. VP & Secretary	3813 GREEN HILLS VILLAGE DRIVE, NASHVILLE TN 37215
Gerald J Ford	director, 10 percent owner, officer: Chairman	200 CRESCENT CT STE 1350, DALLAS TX 75201
Keith E. Bornemann	officer: Corporate Controller	3322 WEST END AVENUE, NASHVILLE TN 37203
Shipp William A Jr	director	9015 ENGLLISH WOOD COURT, BRENTWOOD TN 37027
Kevin P Cohn	officer: VP & Chief Accounting Officer	4400 POST OAK PARKWAY, STE 1100, HOUSTON TX 77027