MSCI (MSCI) Predictability Rank

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What is MSCI 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.

MSCI 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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MSCI Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Financial Services » Capital Markets » MSCI Inc (NYSE:MSCI) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

MSCI:Mexico 0A8Y:UK 3HM:Germany M1SC34:Brazil

Address

250 Greenwich Street, 49th Floor, 7 World Trade Center, New York, NY, USA, 10007

Website

https://www.msci.com

MSCI has described its mission as enabling investors to build better portfolios for a better world. MSCI's largest and most profitable segment is its index segment, where it provides benchmarking to asset managers and asset owners. In addition, it boasts over $1.4 trillion in ETF assets linked to MSCI indexes. The MSCI analytics segment provides portfolio management and risk management analytics software to asset managers and asset owners. MSCI's all other segment was broken out into ESG and climate and private assets segments in 2021. In ESG and climate, MSCI provides ESG data to the investment industry. In private assets, MSCI provides real restate reporting, market data, benchmarking, and analytics to investors and real estate managers.

Executives

Robert J. Gutowski	officer: General Counsel	C/O MSCI INC., 7 WORLD TRADE CENTER, 49TH FLOOR, NEW YORK NY 10007
Scott A Crum	officer: Chief Human Resources Officer	C/O MSCI INC., 7 WORLD TRADE CENTER, 250 GREENWICH STREET, 49TH FL., NEW YORK NY 10007
Henry A Fernandez	director, officer: Chairman, CEO and President	MSCI INC., 88 PINE STREET, NEW YORK NY 10005
Cd Baer Pettit	officer: Head of Client Coverage	MSCI INC., 88 PINE STREET, NEW YORK NY 10005
Catherine R Kinney	director	C/O QTS REALTY TRUST INC., 12851 FOSTER STREET, OVERLAND PARK KS 66213
Andrew C. Wiechmann	officer: Interim CFO and Treasurer	7 WORLD TRADE CENTER, 250 GREENWICH STREET, 49TH FLOOR, NEW YORK NY 10007
Robin Matlock	director	C/O IRON MOUNTAIN INCORPORATED, ONE FEDERAL STREET, BOSTON MA 02110
Jennifer H Mak	officer: Principal Accounting Officer	115 TABOR ROAD, MORRIS PLAINS NJ 07950
Rajat Taneja	director	C/O ELECTRONIC ARTS INC., 209 REDWOOD SHORES PARKWAY, LEGAL DEPT., REDWOOD CITY CA 94065
Paula Volent	director	MSCI INC., 7 WORLD TRADE CENTER, 49TH FLOOR, NEW YORK NY 10007
Sandy C. Rattray	director	MSCI INC., 7 WORLD TRADE CENTER, 49TH FLOOR, NEW YORK NY 10007
Laurent Seyer	officer: Global Head of Client Cvrg	7 WORLD TRADE CENTER, 250 GREENWICH STREET, 49TH FLOOR, NEW YORK NY 10007
Benjamin F Dupont	director	C/O MSCI INC., 88 PINE STREET, NEW YORK NY 10005
Linda Huber	officer: CFO and Treasurer	FACTSET RESEARCH SYSTEMS INC., 45 GLOVER AVENUE, NORWALK CT 06850
Jigar Thakkar	officer: Chief Technology Officer	C/O MSCI INC., 7 WORLD TRADE CENTER, 49TH FLOOR, NEW YORK NY 10007