Berkshire Hathaway (Berkshire Hathaway) 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.

Berkshire Hathaway 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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Berkshire Hathaway (Berkshire Hathaway) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Financial Services » Insurance » Berkshire Hathaway Inc (NYSE:BRK.A) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

BRK.B:USA BRK_B:Peru BRKB:Mexico 1BRK:Italy BRYNd:UK 0HN0:UK 0R37:UK BRHF:Germany BRYN:Germany BRYN:Germany BRYN:Germany BRYN:Germany BRK:Canada BERK34:Brazil BRKB:Austria BRKB:Argentina

Address

3555 Farnam Street, Omaha, NE, USA, 68131

Website

https://www.berkshirehathaway.com

Berkshire Hathaway is a holding company with a wide array of subsidiaries engaged in diverse activities. The firm's core business segment is insurance, run primarily through Geico, Berkshire Hathaway Reinsurance Group, and Berkshire Hathaway Primary Group. Berkshire has used the excess cash thrown off from these and its other operations over the years to acquire Burlington Northern Santa Fe (railroad), Berkshire Hathaway Energy (utilities and energy distributors), and the firms that make up its manufacturing, service, and retailing operations (which include five of Berkshire's largest noninsurance pretax earnings generators: Precision Castparts, Lubrizol, Clayton Homes, Marmon, and IMC/ISCAR). The conglomerate is unique in that it is run on a completely decentralized basis.

Executives

Ronald L Olson	director	EDISON INTERNATIONAL, 2244 WALNUT GROVE AVENUE, ROSEMEAD CA 91770
Ajit Jain	director, officer: Vice Chairman	100 FIRST STAMFORD PLACE, BHRG, STAMFORD CT 06902
Charles T Munger	director, officer: Vice Chairman	355 S GRAND AV, 34TH FL, LOS ANGELES CA 90071
Warren E Buffett	director, 10 percent owner, officer: Chairman and CEO	3555 FARNAM ST, STE 1440, OMAHA NE 68131
Meryl B Witmer	director	655 THIRD AVENUE, 11TH FLOOR, NEW YORK NY 10017
Kenneth I Chenault	director	C/O GENERAL CATALYST, 20 UNIVERSITY ROAD, 4TH FLOOR, CAMBRIDGE MA 02138
David S Gottesman	director
Charlotte Guyman	director	3324 78TH PL. N.E., MEDINA WA 98004
Gregory Abel	director, officer: Vice Chairman	666 GRAND AVE., STE.500, DES MOINES IA 50309
Thomas S Murphy	director	C/O WALT DISNEY CO, 500 S BUENA VISTA STREET, BURBANK CA 91521-1010
Stephen B Burke	director	41 CENTRAL PARK WEST - APT 11A, NEW YORK NY 10023
Keough Donald R /ny	director	200 GALLERIA PARKWAY, SE, SUITE 970, ATLANTA 2Q 30339-5945
Bill & Melinda Gates Foundation Trust	10 percent owner	2365 CARILLON POINT, KIRKLAND WA 98033
Susan L Decker	director	C/O YAHOO INC, 701 FIRST AVE, SUNNYVALE CA 94089
Malcolm G Chace	director	ONE PROVIDENCE WASHINGTON PLZ, 4TH FL, PROVIDENCE RI 02903