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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 ProKidney's Predictability Rank provided by GuruFocus.com. Please click on the following links to see related term pages.
Chamath Palihapitiya | 10 percent owner | THE SOCIAL-CAPITAL PARTNERSHIP, L.L.C., 506 SANTA CRUZ AVENUE, SUITE 300, MENLO PARK CA 94025 |
Sc Pipe Holdings Llc | 10 percent owner | 506 SANTA CRUZ AVE., SUITE 300, MENLO PARK CA 94025 |
Sc Master Holdings, Llc | 10 percent owner | 506 SANTA CRUZ AVENUE, SUITE 300, MENLO PARK CA 94025 |
Bruce Culleton | officer: EVP, Clinical Development | 2000 FRONTIS PLAZA BLVD., SUITE 250, WINSTON-SALEM NC 27103 |
Aaron Cowen | 10 percent owner | 540 MADISON AVENUE, 7TH FLOOR, NEW YORK NY 10022 |
Mary Weger | officer: Chief People Officer | ONE MAIN STREET, SUITE 800, CAMBRIDGE MA 02142 |
William F Doyle | director | |
Tolerantia, Llc | 10 percent owner | 110 EAST 59TH STREET, SUITE 3300, NEW YORK NY 10022 |
Jimenez Santos Jose Ignacio | director | C/O PROKIDNEY CORP., 3929 WESTPOINT BLVD., SUITE G, WINSTON-SALEM NC 27103 |
Deepak Jain | officer: Chief Operating Officer | C/O PROKIDNEY CORP., 3929 WESTPOINT BLVD., SUITE G, WINSTON-SALEM NC 27103 |
Darin J. Weber | officer: SVP of Regulatory Development | C/O PROKIDNEY CORP., 3929 WESTPOINT BLVD., SUITE G, WINSTON-SALEM NC 27103 |
Libbie Parker Mckenzie | officer: Chief Medical Officer | C/O PROKIDNEY CORP., 3929 WESTPOINT BLVD., SUITE G, WINSTON-SALEM NC 27103 |
James Coulston | officer: Chief Financial Officer | C/O PROKIDNEY CORP., 3929 WESTPOINT BLVD., SUITE G, WINSTON-SALEM NC 27103 |
Jennifer A. Fox | director | C/O NUVATION BIO INC., 1500 BROADWAY, SUITE 1401, NEW YORK NY 10036 |
Timothy Bertram | director, officer: Chief Executive Officer | C/O TENGION, INC., 2900 POTSHOP LANE, SUITE 100, EAST NORRITON PA 19403 |
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