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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 FAT Brands's Predictability Rank provided by GuruFocus.com. Please click on the following links to see related term pages.
Lynne Leigh Collier | director | 8523 FOREST HILLS BLVD, DALLAS TX 75218 |
Allen Sussman | officer: General Counsel | 9720 WILSHIRE BLVD., SUITE 500, BEVERLY HILLS CA 90212 |
Robert Rosen | officer: EVP Capital Markets | |
Amy Valentine Forrestal | director | 6330 MOUNTAIN BROOK LANE, ATLANTA GA 30328 |
Kenneth Jeffery Anderson | director | 11150 SANTA MONICA BLVD, STE 400, LOS ANGELES CA 90025 |
Rachel Serruya | 10 percent owner | 1179 KATELLA STREET, LAGUNA BEACH CA 92651 |
Hot Gfg Llc | 10 percent owner | 210 SHIELDS COURT, MARKHAM A6 L3R 8V2 |
Kenneth J. Kuick | officer: Chief Financial Officer | 520 ZANG ST., UNIT D, BROOMFIELD CO 80021 |
Taylor Andrew Wiederhorn | officer: Chief Development Officer | 9720 WILSHIRE BLVD,, SUITE 500, BEVERLY HILLS CA 90212 |
Thayer Donald Wiederhorn | officer: Chief Marketing Officer | 9720 WILSHIRE BLVD,, SUITE 500, BEVERLY HILLS CA 90212 |
Fog Cutter Holdings, Llc | 10 percent owner | 9720 WILSHIRE BLVD, SUITE 500, BEVERLY HILLS CA 90212 |
Rebecca D Hershinger | officer: CHIEF FINANCIAL OFFICER | C/O GENIUS BRANDS INTERNATIONAL, INC., 9401 WILSHIRE BLVD. #608, BEVERLY HILLS CA 90212 |
Toni Mario Bianco | officer: PRESIDENT / COO - FATBURGER | 4029 BALLARD WOODS DRIVE, SMITHFILED KY 40068 |
Fog Cutter Capital Group Inc | 10 percent owner | 1310 S W 17TH ST, PORTLAND OR 97201 |
Silvia Kessel | director | METROMEDIA CO, ONE MEADOWLANDS PLAZA, EAST RUTHERFORD NJ 07073 |
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