OFS (OFS Capital) Predictability Rank

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What is OFS 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.

OFS 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

OFS Capital Predictability Rank Related Terms

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OFS Capital Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Financial Services » Asset Management » OFS Capital Corp (NAS:OFS) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

9UD:Germany

Address

10 South Wacker Drive, Suite 2500, Chicago, IL, USA, 60606

Website

https://www.ofscapital.com

OFS Capital Corp is an externally managed, closed-end, non-diversified management investment company. Its business objective is to generate current income and capital appreciation by investing in middle-market companies in the United States. The company focuses on investments in senior secured loans, including first lien, second lien, and unitranche loans, as well as subordinated loans and, to a lesser extent, warrants, and other equity securities.

Executives

Kyle Spina	officer: Chief Accounting Officer	10 S. WACKER DR, SUITE 2500, CHICAGO IL 60606
Orchard First Source Asset Management Holdings, Llc	10 percent owner	10 SOUTH WACKER, SUITE 2500, CHICAGO IL 60606
Ross Teune	officer: Chief Accounting Officer	150 SOUTH WACKER DRIVE, SUITE 800, CHICAGO IL 60606
Ashwin Ranganathan	director	4700 WILSHIRE BLVD, LOS ANGELES CA 90010
Orchard Investments, Llc	10 percent owner	4700 WILSHIRE BLVD., LOS ANGELES CA 90010
Romita Shetty	director	70 E 55TH STREET, FLOOR 21, NEW YORK NY 10022
Mukya Porter	officer: Chief Compliance Officer	4700 WILSHIRE BOULEVARD, LOS ANGELES CA 90010
Jeffery S. Owen	officer: Chief Accounting Officer	C/O OFS CAPITAL CORPORATION, 10 S. WACKER DRIVE, SUITE 2500, CHICAGO IL 60606
Richard S Ressler	10 percent owner	C/O J2 GLOBAL COMMUNICATIONS, INC., 6922 HOLLYWOOD BLVD, 5TH FLOOR, LOS ANGELES CA 90028
Jeffrey A Cerny	officer: CFO and Treasurer	10 SOUTH WACKER DRIVE, SUITE 2500, CHICAGO IL 60606
Bilal Rashid	director	10 SOUTH WACKER DRIVE, SUITE 2500, CHICAGO IL 60606
Elaine Healy	director
Oi3 2019 Trust	10 percent owner	4700 WILSHIRE BOULEVARD, LOS ANGELES CA 90010
Oi3, Llc	10 percent owner	4700 WILSHIRE BOULEVARD, LOS ANGELES CA 90010
Eric P. Rubenfeld	officer: Chief Compliance Officer	2850 WEST GOLF ROAD, 5TH FLOOR, ROLLING MEADOWS IL 60008