What is MidCap Financial Investment 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.
MidCap Financial 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
Also read:
Part II: What worked in the market from 1998-2008? Part II: Role of Valuations
Part III: Intrinsic Value, Discounted Cash Flow and Margin of Safety
MidCap Financial Investment (MidCap Financial Investment) Business Description
Traded in Other Exchanges
Address
9 West 57th Street, 37th Floor, New York, NY, USA, 10019
MidCap Financial Investment Corp is an externally managed, publicly traded, Business Development Company, focused on providing senior debt solutions to middle market companies.
Executives
| Ryan Delgiudice |
officer: Chief Compliance Officer |
1520 E. GRAND AVENUE, EL SEGUNDO CA 90245 |
| Mcnulty Ted Aymond Jr. |
officer: President |
9 WEST 57TH STREET, NEW YORK NY 10019 |
| Tanner Powell |
officer: Chief Executive Officer |
C/O APOLLO INVESTMENT CORPORATION, 9 W. 57TH STREET, NEW YORK NY 10019 |
| Emanuel R Pearlman |
director |
250 EAST 79TH STREET, NEW YORK NY 10075 |
| Whonder Carmencita N.m. |
director |
9 WEST 57TH STREET, 43RD FLOOR, NEW YORK NY 10019 |
| Howard Widra |
officer: President |
9 WEST 57TH STREET, 37TH FLOOR, NEW YORK NY 10019 |
| Kristin Hester |
officer: See Remarks |
9 WEST 57TH STREET, NEW YORK NY 10019 |
| John J Hannan |
director |
9 WEST 57TH STREET, NEW YORK NY 10019 |
| Barbara Ruth Matas |
director |
9800 59TH AVENUE NORTH, MINNEAPOLIS MN 55442 |
| Elliot Jr Stein |
director |
C/ COMMONWEALTH CAPITAL PARTNERS, 444 MADISON AVE, NEW YORK NY 10022 |
| Amit Joshi |
officer: Chief Accounting Officer |
APOLLO INVESTMENT CORP., 9 WEST 57TH STREET, NEW YORK NY 10019 |
| Hilary E. Ackermann |
director |
601 TRAVIS, SUITE 1400, HOUSTON TX 77002 |
| Frank C Puleo |
director |
7425 PURPLE SAGE, GLENWILD, PARK CITY UT 84098 |
| James C Zelter |
director, officer: Chief Executive Officer |
APOLLO INVESTMENT CORPORATION, 9 WEST 57TH STREET, 14TH FLOOR, NEW YORK NY 10019 |
| Gregory W. Hunt |
officer: CFO & TREASURER |
730 5TH AVENUE, NEW YORK NY 10019 |
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