The Upside of FedEx Has A Probability of X
“FedEx shares surged last week,” Jack Hough wrote in Barron’s on March 19, 2016, before making a prediction: “They’ve got another 15% to 20% upside in a year.” Now before you go rushing off to buy FedEx shares, try filling in the blank:
There is a __% chance FedEx will rise another 15% to 20% in the next 1 year.
B. 30% chance
C. 75% chance
D. I’m drawing a blank
If you chose A, a 10% chance, you are correct. Eidosearch’s conditional distribution shows a 10% probability that FedEx will rise in the next year another 13% to 21% (~ Jack’s range of 15% to 20%).
So, as always, have a great week!
Feels incomplete, right? We still haven’t considered an enormous blindspot in our forecast, the 90% probability range that could make or break your investment strategy.
EidoSearch can fill in these information gaps. Each one of the return bins in the table below has an equal probability of occurring. Because we chose 10 bins, there is a 10% probability FedEx will fall into each bin. Highlighted is the range closest to that given in the by-line of the Barron’s article.
You may disagree that each of these ranges of returns has an equal probability of occurring. And that’s great — that’s how our customers combine their unique knowledge of FedEx with the probabilities we provide to make decisions about their holdings (i.e., should I own more, less or the same).
Contrast these informational riches to Jack’s original statement:
Or the far better, but still lacking, single range prediction at the start of this email:
Quite a difference.
Our probability bins are derived from the full conditional distribution (bar chart below).
Another way to present the average and a selected range within the full distribution is the line chart below.
Not that we’re picking on Jack Hough’s forecasting abilities. He actually tells a sharp story about the shipping giant’s strengths, and even predicts a range of returns by a certain timeline. But he left out one essential ingredient to make a statement about the future meaningful, and you don’t need a patented, state-of-the-art search engine like Eidosearch to guess what he missed:
Here’s a hint: PROB_ _ _ _ _ _ _.
Another clue: _ _ _ _ ABILITY.
For real this time, have a great week!