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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 Payoneer Global's Predictability Rank provided by GuruFocus.com. Please click on the following links to see related term pages.
Itai Perry | officer: SVP Finance | C/O CROWDSTRIKE HOLDINGS, INC., 206 E. 9TH STREET, AUSTIN TX 78701 |
Technology Crossover Management Viii, Ltd. | 10 percent owner, other: May be part of a 13(d) group | C/O TECHNOLOGY CROSSOVER VENTURES, 250 MIDDLEFIELD ROAD, MENLO PARK CA 94025 |
Scott H. Galit | director, officer: Chief Executive Officer | C/O FTAC OLYMPUS ACQUISITION CORP., 2929 ARCH STREET, SUITE 1703, PHILADELPHIA PA 19104 |
Avi Zeevi | director | C/O FTAC OLYMPUS ACQUISITION CORP., 2929 ARCH STREET, SUITE 1703, PHILADELPHIA PA 19104 |
Tsafi Goldman | officer: CL&RO | C/O FTAC OLYMPUS ACQUISITION CORP., 2929 ARCH STREET, SUITE 1703, PHILADELPHIA PA 19104 |
Beatrice Ordonez | officer: Chief Financial Officer | TWO BLUE HILL PLAZA - SECOND FLOOR, PEARL RIVER NY 10965 |
Arnon Kraft | officer: Chief Operating Officer | 150 W 30TH ST., NEW YORK NY 10001 |
Susanna Morgan | director | 1111 THIRD AVENUE, ST. 2100, C/O REMITLY GLOBAL, INC., SEATTLE WA 98101 |
Caro Del Castillo Sharda | director | C/O AFFIRM HOLDINGS, INC., 650 CALIFORNIA STREET, SAN FRANCISCO CA 94108 |
Michael G Levine | officer: Chief Financial Officer | C/O FTAC OLYMPUS ACQUISITION CORP., 2929 ARCH STREET, SUITE 1703, PHILADELPHIA PA 19104 |
Robert Kl Clarkson | officer: Chief Revenue Officer | 150 W 30TH ST., NEW YORK NY 10001 |
Assaf Ronen | officer: Chief Platform Officer | 234 1ST ST, SAN FRANCISCO CA 94105 |
John C. Morris | director | C/O VISA INC., P.O. BOX 8999, SAN FRANCISCO CA 94128-8999 |
John Caplan | director, officer: Co-Chief Executive Officer | C/O PAYONEER GLOBAL INC. 150 W. 30TH ST, NEW YORK NY 10001 |
Gilad Gruber | officer: Chief Technology Officer | 150 W. 30TH STREET, NEW YORK NY 10001 |
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