Two Harbors Investment (Two Harbors Investment) Predictability Rank

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What is Two Harbors 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.

Two Harbors 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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Two Harbors Investment (Two Harbors Investment) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Real Estate » REITs » Two Harbors Investment Corp (NYSE:TWO) » Definitions » Predictability Rank

Comparable Companies

CMTG LADR PMT MFA RC ARI CIM FBRT EFC ARR NLY AGNC STWD RITM BXMT ABR BRSP RWT DX KREF

Traded in Other Exchanges

TWOpC.PFD:USA TWOpB.PFD:USA TWOpA.PFD:USA 2H2:Germany

Address

1601 Utica Avenue South, Suite 900, St. Louis Park, MN, USA, 55416

Website

https://www.twoharborsinvestment.com

Two Harbors Investment Corp is a real estate investment trust primarily focused on investing in, financing, and managing residential mortgage-backed securities, or RMBS; residential mortgage loans; mortgage servicing rights; and commercial real estate. The majority of the company's investment portfolio is split between agency RMBS purchased from government-sponsored enterprises and nonagency RMBS. Two Harbors derives nearly all of its revenue in the form of interest income collected from its investments. Most of this income is generated by available-for-sale securities, while residential mortgage loans held for investment in securitization trusts also contribute a sizable amount.

Executives

Nicholas Letica	officer: Vice Pres. & Chief Inv. Off.	1601 UTICA AVENUE SOUTH, SUITE 900, ST. LOUIS PARK MN 55416
Robert Rush	officer: Vice President & CRO	1601 UTICA AVENUE SOUTH, SUITE 900, ST. LOUIS PARK MN 55416
Jason Vinar	officer: Vice President & Head of MSR	1601 UTICA AVENUE SOUTH, SUITE 900, ST. LOUIS PARK MN 55416
Matthew Keen	officer: Vice President & CTO	1601 UTICA AVENUE SOUTH, SUITE 900, ST. LOUIS PARK MN 55416
Alecia Hanson	officer: Vice President & CAO	1601 UTICA AVENUE SOUTH, SUITE 900, ST. LOUIS PARK MN 55416
William Ross Greenberg	officer: Co-Chief Investment Officer	1601 UTICA AVENUE SOUTH, SUITE 900, ST. LOUIS PARK MN 55416
Mary Kathryn Riskey	officer: Chief Accounting Officer	1601 UTICA AVENUE SOUTH, SUITE 900, ST. LOUIS PARK MN 55416
Rebecca B Sandberg	officer: General Counsel and Secretary	1601 UTICA AVENUE SOUTH, SUITE 900, ST. LOUIS PARK MN 55416
David B Hughes	other: EVP Servicing Ops RoundPoint	1601 UTICA AVENUE SOUTH, SUITE 900, ST. LOUIS PARK MN 55416
Nathan Boucher	other: EVP General Counsel RoundPoint	1601 UTICA AVENUE SOUTH, SUITE 900, ST. LOUIS PARK MN 55416
Spencer Abraham	director	600 14TH STREET, NW, SUITE 500, WASHINGTON DC 20005
James J Bender	director	1601 UTICA AVENUE SOUTH, SUITE 900, ST. LOUIS PARK MN 55416
Stephen G Kasnet	director	1601 UTICA AVENUE SOUTH, SUITE 900, ST. LOUIS PARK MN 55416
Matthew Koeppen	officer: Co-Chief Investment Officer	601 CARLSON PARKWAY, SUITE 1400, MINNETONKA MN 55305
Thomas Siering	director, officer: Chief Executive Officer & Pres	TWO HARBORS INVESTMENT CORP., 601 CARLSON PARKWAY, SUITE 1400, MINNETONKA MN 55305