Market Cap : 34.31 B | Enterprise Value : 42.63 B | PE Ratio : 44.21 | PB Ratio : 1.89 |
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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 Allstate's Predictability Rank provided by GuruFocus.com. Please click on the following links to see related term pages.
Williams Terrance | officer: AIC-President Protec Prod&Svcs | 7184 BIDDICK NEW ALBANY OH 43054 |
Toohey Robert | officer: EVP, Chief HR Officer - AIC | 2775 SANDERS ROAD NORTHBROOK IL 60062 |
Brown Donald Eugene | director | 801 E. 86TH AVENUE MERRILLVILLE IN 46410 |
Ferguson Rhonda S | officer: EVP & General Counsel | 1400 DOUGLAS ST OMAHA NE 68179 |
Hume Richard T | director | 5350 TECH DATA DRIVE CLEARWATER FL 33760 |
Prindiville Mark Q | other: EVP & Chief Risk Officer - AIC | 2775 SANDERS ROAD NORTHBROOK IL 60062 |
Blair Carolyn D | other: EVP, Chief HR Officer - AIC | 2775 SANDERS ROAD NORTHBROOK IL 60062 |
Pintozzi John C | officer: SVP, Controller, and CAO | 2775 SANDERS ROAD NORTHBROOK IL 60062 |
Brady Elizabeth | other: Executive Vice President - AIC | 2775 SANDERS ROAD NORTHBROOK IL 60062 |
Rizzo Mario | officer: EVP & Chief Financial Officer | 2775 SANDERS ROAD NORTHBROOK IL 60062 |
Shapiro Glenn T | other: Pres Allstate Personal Lines | 2775 SANDERS ROAD NORTHBROOK IL 60062 |
Keane Margaret M | director | 777 LONG RIDGE ROAD SYNCHRONY FINANCIAL C/O CORP. SECRETARY STAMFORD CT 06902 |
Merten Jesse E | officer: EVP & Chief Risk Officer (AIC) | 2775 SANDERS ROAD NORTHBROOK IL 60062 |
Sherrill Gregg M | director | 5757 N. GREEN BAY AVENUE P.O. BOX 591 MILWAUKEE WI 53201-0591 |
Ferren Eric K | officer: SVP, Controller, and CAO | C/O THE ALLSTATE CORPORATION 2775 SANDERS ROAD NORTHBROOK IL 60062 |
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