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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 AgeX Therapeutics's Predictability Rank provided by GuruFocus.com. Please click on the following links to see related term pages.
Jean-christophe Renondin | director | 505 PARK AVENUE 14TH FLOOR, NEW YORK NY 10022 |
Juvenescence Us Corp. | director, 10 percent owner | 303A COLLEGE ROAD EAST, PRINCETON NJ 08540 |
Joanne M. Hackett | director | C/O AGEX THERAPEUTICS, INC.,, 1101 MARINA VILLAGE PARKWAY, SUITE 201, ALAMEDA CA 94708 |
Park Andrea Eun Jae | officer: Chief Financial Officer | C/O AGEX THERAPEUTICS, INC., 965 ATLANTIC AVE., SUITE 101, ALAMEDA CA 94501 |
Michael H May | director | 965 ATLANTIC AVENUE, SUITE 101, ALAMEDA CA 94501 |
Michael D West | director, officer: Chief Executive Officer | AGEX THERAPEUTICS, INC., 1101 MARINA VILLAGE PARKWAY, SUITE 201, ALAMEDA CA 94501 |
Michael H. Mulroy | director | 1300 N. KELLOGG DRIVE, SUITE D, ANAHEIM CA 92807 |
Russell Skibsted | officer: Chief Financial Officer | 15 TRANQUILITY PLACE, LADERA RANCH CA 92694 |
Judith Segall | officer: Corporate Secretary | 1010 ATLANTIC AVENUE, SUITE 102, ALAMEDA CA 94501 |
Hal Sternberg | officer: Vice President-Research | 935 PARDEE STREET, BERKELEY CA 94710 |
Annalisa Jenkins | director | C/O ARDELYX, INC., 34715 ARDENWOOD BLVD, SUITE 100, FREMONT CA 94555 |
John F Mauldin | director | 3204 BEVERLY DRIVE, DALLAS TX 75205 |
Gregory Bailey | director | 4 A CHESHAM STREET, LONDON X0 SW1X8DT |
Juvenescence Ltd | 10 percent owner | 1ST FLOOR, VIKING HOUSE, ST PAULS SQUARE, RAMSEY Y8 IM8 1GB |
Nafees Naseer Malik | officer: Chief Operating Officer | C/O AGEX THERAPEUTICS, INC., 1010 ATLANTIC AVE, STE 102, ALAMEDA CA 94501 |
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