Predictive Analytics….Oh and an Industrial Stock is Probably Going Higher

“Probability is like gravity: you cannot negotiate with Gravity” – Don Johnson, aka Sonny Crocket, Miami Vice

In many industries, the use of statistics and probabilities is a necessary part of the everyday decision making process:

•      ·  Doctors chart the best course of treatment with the highest probability of survival to a particular illness
•      ·  Baseball managers look at batting average and earned run average to make decisions like
•        when to replace a pitcher or pinch hit for a batter
•      · Banks calculate the probability of repayment based on a clients’ financial history when making loan decisions
•      ·  Meteorologists forecast the probability of rain or snow based on weather patterns

Yet in the investment community, in a field seemingly well suited for the incorporation of probabilities to support investment decisions, they are not widely used.  To be fair, statistics are the main drivers in systematic trading strategies, and price and risk forecasting is a common part of portfolio management.  Also, Technicians have for decades effectively used empirical evidence of repeatable patterns to gain an edge on likely outcomes, and most traders and portfolio managers are able to apply their vast experience of historical comps to investment decisions.  However, for the majority of fundamental investment decisions, statistical probabilities of return outcomes are not being utilized to answer questions like:

•      ·  Is this a good entry point?
•      ·  Should we build our position slowly or quickly to maximize profits?
•      ·  How is my stock likely to react to this event?

You can see in the following chart for Fastenal Company (FAST), based on our research including 2.5 million projections over 9 years, we are able to say that there’s 85% probability this stock will be above $44.46 (just about its current price) in 3 months.  How?

Predictive Analytics based on the Current 6 Month Price Trend of Fastenal (FAST)

The applications of EidoSearch and our predictive analytics technology were previously applied to areas like neurosciences, the human genome project and even NASA with satellite imagery analysis.  These fields of study desire probable outcomes based on times series data, so it’s natural for us to provide these meaningful probabilities to financial time series data.  Specifically, looking at price trends and measuring how investors have historically reacted to these trends provides “discerning power”.

This unique technology is now allowing EidoSearch to deliver predictive analytics to the investment community in a meaningful way to complement fundamental, technical and quantitative investment decisions.  For Fastenal (FAST), the return probability represents a good risk profile for current holders and idea generation for potential investors.

Have a great week!