Acacia Research (Acacia Research) Predictability Rank

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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.

Acacia Research 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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Acacia Research (Acacia Research) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Industrials » Industrial Products » Acacia Research Corp (NAS:ACTG) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

AZG2:Germany

Address

767 Third Avenue, 6th Floor, New York, NY, USA, 10017

Website

https://www.acaciaresearch.com

Acacia Research Corp is engaged in the acquisition, development, and patents technologies through its subsidiaries. It assists patent owners with the prosecution and development of their patent portfolios; protection of their patented inventions from unauthorized use; generation of licensing revenue from users of their patented technologies; and enforcement against unauthorized users of their patented technologies. It has two segments Intellectual Property Operations and Industrial Operations.

Executives

Jason W. Soncini	officer: General Counsel	767 THIRD AVENUE, SUITE 602, NEW YORK NY 10017
Mcnulty Martin D. Jr.	officer: COO & Head of M&A	C/O STARBOARD VALUE ACQUISITION CORP., 777 THIRD AVENUE, 18TH FLOOR, NEW YORK NY 10017
Geoffrey G Ribar	director
Kirsten Hoover	officer: Controller	4 PARK PLAZA, SUITE 550, IRVINE CA 92614
Robert Rasamny	officer: Chief Administrative Officer	767 THIRD AVENUE, 6TH FLOOR, NEW YORK NY 10017
Starboard Value & Opportunity Master Fund Ltd	other: See Footnote 2	777 THIRD AVENUE, 18TH FLOOR, NEW YORK NY 10017
Peter A Feld	10 percent owner, other: See Footnote 2	201 E LAS OLAS BOULEVARD, SUITE 1000, FORT LAUDERDALE FL 33301
Starboard Value Lp	10 percent owner, other: See Footnote 2	777 THIRD AVENUE, 18TH FLOOR, NEW YORK NY 10017
Starboard Value Gp Llc	10 percent owner, other: See Footnote 2	777 THIRD AVENUE, 18TH FLOOR, NEW YORK NY 10017
Starboard Principal Co Lp	10 percent owner, other: See Footnote 2	777 THIRD AVENUE, 18TH FLOOR, NEW YORK NY 10017
Starboard Principal Co Gp Llc	10 percent owner, other: See Footnote 2	777 THIRD AVENUE, 18TH FLOOR, NEW YORK NY 10017
Starboard Value & Opportunity S Llc	other: See Footnote 2	777 THIRD AVENUE, 18TH FLOOR, NEW YORK NY 10017
Starboard Value & Opportunity C Lp	other: See Footnote 2	777 THIRD AVENUE, 18TH FLOOR, NEW YORK NY 10017
Starboard Value R Lp	other: See Footnote 2	777 THIRD AVENUE, 18TH FLOOR, NEW YORK NY 10017
Starboard Value R Gp Llc	other: See Footnote 2	777 THIRD AVENUE, 18TH FLOOR, NEW YORK NY 10017