Market Cap : 431.37 B | Enterprise Value : 439.29 B | PE Ratio : 32.06 | PB Ratio : 13.28 |
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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 Visa's Predictability Rank provided by GuruFocus.com. Please click on the following links to see related term pages.
Fabara Paul D | officer: EVP and Chief Risk Officer | 200 VESEY STREET NEW YORK NY 10285 |
Kelly Alfred F Jr | director, officer: CHAIRMAN & CEO | AMERICAN EXPRESS COMPANY 200 VESEY STREET NEW YORK NY 10285 |
Taneja Rajat | officer: PRESIDENT, TECHNOLOGY | C/O ELECTRONIC ARTS INC. 209 REDWOOD SHORES PARKWAY, LEGAL DEPT. REDWOOD CITY CA 94065 |
Mahon Tullier Kelly | officer: EVP, GENERAL COUNSEL | C/O VISA INC. PO BOX 8999 SAN FRANCISCO CA 94128 |
Biggar Lynne | officer: EVP, CHIEF MRKTNG & COMM OFF | 1271 AVENUE OF THE AMERICAS NEW YORK NY 10020-1300 |
Swainson John A | director | C/O VISA INC. 900 METRO CENTER BLVD. FOSTER CITY CA 94404 |
Carney Lloyd | director | C/O MICROMUSE INC 139 TOWNSEND ST SAN FRANCISCO CA 94107 |
Prabhu Vasant M | officer: VICE CHAIR & CFO | C/O SAFEWAY INC 5918 STONERIDGE MALL ROAD PLEASANTON CA 94588 |
Mcinerney Ryan | officer: PRESIDENT | C/O VISA INC. PO BOX 8999 SAN FRANCISCO CA 94128 |
Hoffmeister James H | officer: SVP, GBL CORP CONTRL & CAO | C/O VISA INC. PO BOX 8999 SAN FRANCISCO CA 94128 |
Fernandez-carbajal Francisco Javier | director | P.O. BOX 8999 C/O VISA INC. SAN FRANCISCO CA 94128-8999 |
Matschullat Robert W | director | C/O THE CLOROX COMPANY 1221 BROADWAY OAKLAND CA 94612 |
Morrison Denise M | director | METLIFE 200 PARK AVENUE NEW YORK NY 10166 |
Nora Johnson Suzanne M | director | 85 BROAD STREET NEW YORK NY 10004 |
Cranston Mary B | director | C/O VISA INC. P.O. BOX 8999 SAN FRANCISCO CA 94128-8999 |
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