Velocity Financial (Velocity Financial) Predictability Rank

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What is Velocity Financial Predictability Rank?

Not Rated

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.

Velocity Financial 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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Velocity Financial (Velocity Financial) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Financial Services » Banks » Velocity Financial Inc (NYSE:VEL) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

N/A

Address

30699 Russell Ranch Road, Suite 295, Westlake Village, CA, USA, 91362

Website

https://www.velfinance.com

Velocity Financial Inc is a United States-based real estate finance company. The company primarily originates and manages investor loans secured by 1-4 unit residential rental and small commercial properties. The company earns revenue in the form of interest income. It operates in New York, California, Florida, New Jersey, and other states.

Executives

Omar Maasarani	director	C/O PIMCO, 650 NEWPORT CENTER DRIVE, NEWPORT BEACH CA 92660
John Pitstick	director	30699 RUSSELL RANCH ROAD, SUITE 250, WESTLAKE VILLAGE CA 91362
Fiona Tam	officer: Chief Accounting Officer	30699 RUSSELL RANCH RD, STE. 295, WESTLAKE VILLAGE CA 91362
Lvs Iii Holding Lp	director, 10 percent owner	C/O PACIFIC INVESTMENT MGMT. COMPANY LLC, 650 NEWPORT CENTER DRIVE, NEWPORT BEACH CA 92600
Tobi Iii Spe I Llc	director, 10 percent owner	C/O PACIFIC INVESTMENT MGMT. COMPANY LLC, 650 NEWPORT CENTER DRIVE, NEWPORT BEACH CA 92600
Pacific Investment Management Co Llc	director, 10 percent owner	650 NEWPORT CENTER DRIVE, NEWPORT BEACH CA 92660
Katherine Verner	director	C/O PIMCO, 650 NEWPORT CENTER DRIVE, NEWPORT BEACH CA 92660
Michael Chiao	director	650 NEWPORT CENTER DRIVE, NEWPORT BEACH CA 92600
Roland Thomas Kelly	officer: General Counsel	1551 CALLE PATRICIA, PACIFIC PALISADES CA 90272
Jeffrey T. Taylor	officer: See Remarks	30699 RUSSELL RANCH ROAD, SUITE 295, WESTLAKE VILLAGE CA 91362
Christopher D. Farrar	director, officer: Chief Executive Officer	30699 RUSSELL RANCH ROAD, SUITE 295, WESTLAKE VILLAGE CA 91362
Dorika M Beckett	director	30699 RUSSELL RANCH ROAD, SUITE 295, WESTLAKE VILLAGE CA 91362
Mark R Szczepaniak	officer: Chief Financial Officer	C/O VELOCITY FINANCIAL, 30699 RUSSELL RANCH ROAD, SUITE 295, WESTLAKE VILLAGE CA 91362
Christopher J Oltmann	officer: Chief Accounting Officer	C/O VELOCITY FINANCIAL, 30699 RUSSELL RANCH ROAD, SUITE 295, WESTLAKE VILLAGE CA 91362
Graham M Comley	officer: See Remarks	C/O VELOCITY FINANCIAL, 30699 RUSSELL RANCH ROAD, SUITE 295, WESTLAKE VILLAGE CA 91362