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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 X4 Pharmaceuticals's Predictability Rank provided by GuruFocus.com. Please click on the following links to see related term pages.
Paula Ragan | director, officer: President and CEO | C/O X4 PHARMACEUTICALS, INC., 955 MASSACHUSETTS AVE., 4TH FLOOR, CAMBRIDGE MA 02139 |
Mark Baldry | officer: Chief Commercial Officer | C/O AMICUS THERAPEUTICS, 1 CEDAR BROOK DRIVE, CRANBURY NJ 08512 |
Arthur Taveras | officer: Chief Scientific Officer | C/O X4 PHARMACEUTICALS, INC., 61 NORTH BEACON STREET, 4TH FLOOR, BOSTON MA 02134 |
Mary Dibiase | officer: Chief Operating Officer | 61 NORTH BEACON STREET, 4TH FLOOR, BOSTON MA 02134 |
Adam S. Mostafa | officer: See Remarks | C/O X4 PHARMACEUTICALS INC., 61 NORTH BEACON STREET, 4TH FLOOR, BOSTON MA 02134 |
Keith Woods | director | C/O X4 PHARMACEUTICALS INC., 61 NORTH BEACON STREET 4TH FLOOR, BOSTON MA 02134 |
Michael S Wyzga | director | RADIUS HEALTH, INC., 201 BROADWAY, 6TH FLOOR, CAMBRIDGE MA 02139 |
Christophe Arbet-engels | officer: Chief Medical Officer | C/O MILLENDO THERAPEUTICS, INC., 110 MILLER AVENUE, SUITE 100, ANN ARBOR MI 48104 |
Murray Stewart | director | C/O NOVELION THERAPEUTICS INC., 1800-510 WEST GEORGIA STREET, VANCOUVER A1 V6B OM3 |
Craecker Francoise De | director | 61 NORTH BEACON STREET, 4TH FLOOR, BOSTON MA 02134 |
Derek M Meisner | officer: General Counsel | C/O GENOCEA BIOSCIENCES, INC., 100 ACORN PARK DRIVE, 5TH FLOOR, CAMBRIDGE MA 02140 |
Diego Cadavid | officer: Chief Medical Officer | C/O FULCRUM THERAPEUTICS, INC., 26 LANDSDOWNE STREET, CAMBRIDGE MA 02139 |
Alison Frances Lawton | director | 39 ROBINSON ROAD, LEXINGTON MA 02420 |
Renato Skerlj | officer: Chief Scientific Officer | C/O X4 PHARMACEUTICALS, INC., 955 MASSACHUSETTS AVENUE, 4TH FLOOR, CAMBRIGE MA 02139 |
William Aliski | director | C/O ULTRAGENYX PHARMACEUTICAL INC., 60 LEVERONI COURT, NOVATO CA 94949 |
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