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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 Vigil Neuroscience's Predictability Rank provided by GuruFocus.com. Please click on the following links to see related term pages.
Ivana Magovcevic-liebisch | director, officer: President and CEO | 300 TECHNOLOGY SQUARE, 8TH FLOOR, CAMBRIDGE MA 02139 |
Christopher Silber | officer: Chief Medical Officer | C/O VIGIL NEUROSCIENCE, INC., 100 FORGE ROAD, SUITE 700, WATERTOWN MA 02472 |
Budd Haeberlein Samantha L. | director | VIGIL NEUROSCIENCE, INC., 100 FORGE ROAD, SUITE 700, WATERTOWN MA 02472 |
Gray David L. F. | officer: Chief Science Officer | VIGIL NEUROSCIENCE, INC., 100 FORGE ROAD, SUITE 700, WATERTOWN MA 02472 |
Spyridon Papapetropoulos | officer: Chief Medical Officer | C/O ADAMAS PHARMACEUTICALS, INC., 1900 POWELL ST., SUITE 1000, EMERYVILLE CA 94608 |
Suzanne Louise Bruhn | director | C/O AEGLEA BIOTHERAPEUTICS, INC., 901 S. MOPAC EXPRESSWAY, SUITE 250, AUSTIN TX 78746 |
Clay Thorp | director | C/O HATTERAS VENTURE PARTNERS III, LP, 280 S. MANGUM ST., SUITE 350, DURHAM NC 27701 |
Evan Thackaberry | officer: SVP, Head of Early Development | VIGIL NEUROSCIENCE, INC., 300 TECHNOLOGY SQUARE, CAMBRIDGE MA 02139 |
Jennifer Lynn Ziolkowski | officer: Chief Financial Officer | C/O SOLID BIOSCIENCES, LLC, 141 PORTLAND STREET, FIFTH FLOOR, CAMBRIDGE MA 02139 |
Christopher Verni | officer: General Counsel | VIGIL NEUROSCIENCE, INC., 1 BROADWAY, 7TH FLOOR, SUITE 07-300, CAMBRIDGE MA 02142 |
Mary Thistle | director | C/O VIACELL, INC., 245 FIRST STREET, CAMBRIDGE MA 02142 |
Vida Ventures Gp Iii, L.l.c. | 10 percent owner | 455 MARKET STREET, SUITE 1420, SAN FRANCISCO CA 94105 |
Northpond Ventures Gp, Llc | 10 percent owner | 7500 OLD GEORGETOWN ROAD, SUITE 850, BETHESDA MD 20814 |
Stefan Vitorovic | director | C/O PRAXIS PRECISION MEDICINES, INC., ONE BROADWAY, 16TH FLOOR, CAMBRIDGE MA 02142 |
Bruce Booth | director | 890 WINTER STREET, SUITE 320, WALTHAM MA 02451 |
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