Saratoga Investment (Saratoga Investment) Predictability Rank

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What is Saratoga Investment Predictability Rank?

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.

Saratoga Investment 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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Saratoga Investment (Saratoga Investment) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Financial Services » Asset Management » Saratoga Investment Corp (NYSE:SAR) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

N/A

Address

535 Madison Avenue, 4th Floor, New York, NY, USA, 10022

Website

https://www.saratogainvestmentcorp.com

Saratoga Investment Corp is a specialty finance company that provides customized financing solutions to U.S. middle-market businesses. The company invests in senior and unitranche leveraged loans and mezzanine debt and, to a lesser extent, equity issued by private U.S. middle-market companies, which it defines as companies having annual earnings before interest, taxes, depreciation and amortization (EBITDA) under $50 million, both through direct lending and through participation in loan syndicates.

Executives

Christian L Oberbeck	director, 10 percent owner, officer: CEO and Director	C/O KOPPERS INC, 436 SEVENTH AVENUE, SUITE 1550, PITTSBURG PA 15219
Steven M Looney	director	132 WAIKU ROAD, RIDGEWOOD NJ 07450-2322
Henri J Steenkamp	officer: Chief Financial Officer	SARATOGA INVESTMENT ADVISORS, LLC, 535 MADISON AVENUE, 4TH FLOOR, NEW YORK NY 10022
Williams George Cabell Iii	director	5422 ALBIA ROAD, BETHESDA MD 20816
Elizabeth Oberbeck	10 percent owner	C/O SARATOGA INVESTMENT CORP., 535 MADISON AVENUE, NEW YORK NY 10022
Michael J Grisius	director, officer: President and Director	1919 PENNSYLVANIA AVE NW, 3RD FL, WASHINGTON DC 20006
Whitman Iii Charles S	director	C/O GSC INVESTMENT CORP., 12 EAST 49TH STREET, SUITE 3200, NEW YORK NY 10017
Phillips Charles G Iv	other: Member of 10% owner group.	C/O SARATOGA INVESTMENT ADVISORS, LLC, 535 MADISON AVENUE, 4TH FLOOR, NEW YORK NY 10022
Richard A Petrocelli	director, officer: CFO, Secretary and CCO	1350 6TH AVENUE, 18TH FLOOR, NEW YORK NY 10019
John P. Birkelund	other: Member of 10% owner group	ETHAN ALLEN DRIVE, DANBURY CT 06811
John F. Macmurray	other: Member of 10% owner group	C/O SARATOGA INVESTMENT ADVISORS, LLC, 535 MADISON AVENUE, 4TH FLOOR, NEW YORK NY 10022
Durkin Charles P Jr	other: Member of 10% owner group
Clo Partners Llc	other: Member of 10% owner group	535 MADISON AVENUE, 4TH FLOOR, NEW YORK NY 10022
Saratoga Investment Advisors, Llc	other: Member of 10% owner group	535 MADISON AVENUE, 4TH FLOOR, NEW YORK NY 10022
Ivo Turkedjiev	officer: VP Corporate Credit Group	C/O GSC INVESTMENT CORP, 888 SEVENTH AVE, NEW YORK NY 10019