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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 DocuSign's Predictability Rank provided by GuruFocus.com. Please click on the following links to see related term pages.
Allan C. Thygesen | director, officer: President and CEO | 20 DAVIS DRIVE, BELMONT CA 94002 |
Stephen Shute | officer: President, Field Operations | 221 MAIN STREET, SUITE 1550, SAN FRANCISCO CA 94105 |
Blake Jeffrey Grayson | officer: Chief Financial Officer | 2212 EVERETT AVENUE E, SEATTLE WA 98102 |
Teresa Briggs | director | 2225 LAWSON LANE, SANTA CLARA CA 95054 |
James P Shaughnessy | officer: Chief Legal Officer | 4460 HACIENDA DR., PLEASANTON CA 94588 |
Daniel D. Springer | director, officer: President and CEO | C/O DOCUSIGN, INC., 221 MAIN ST., SUITE 1000, SAN FRANCISCO CA 94105 |
Anna Marrs | director | 200 VESEY STREET, NEW YORK NY 10285 |
Enrique T Salem | director | SYMANTEC CORPORATION, 20330 STEVENS CREEK BLVD., CUPERTINO CA 95014 |
Robert Chatwani | officer: President General Mgr, Growth | 221 MAIN STREET, SUITE 1550, SAN FRANCISCO CA 94105 |
Inhi Cho Suh | officer: President, Product Engineering | C/O DOCUSIGN, INC., 221 MAIN STREET, SUITE 1000, SAN FRANCISCO CA 94105 |
Scott V. Olrich | officer: Chief Strategy and Marketing | C/O DOCUSIGN, INC., 221 MAIN ST., SUITE 1000, SAN FRANCISCO CA 94105 |
Cynthia Gaylor | director | C/O PIVOTAL SOFTWARE, INC., 875 HOWARD STREET, FIFTH FLOOR, SAN FRANCISCO CA 94103 |
Tram T Phi | officer: SVP, General Counsel | C/O DOCUSIGN, INC., 221 MAIN STREET, SUITE 1550, SAN FRANCISCO CA 94105 |
Peter Solvik | director | 2105 SOUTH BASCOM AVE. #370, CAMPBELL CA 95008 |
Loren Alhadeff | officer: Chief Revenue Officer | C/O DOCUSIGN, INC., SUITE 1000, SAN FRANCISCO CA 94105 |
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