Dec 7, 2016: Fox Business News just published (here) a very optimistic article on Facebook stock (FB) saying "..by nearly any measure...FB...has unlimited upside as the world transitions to digital." Glowing optimistic forecasts about technology stocks always interest the Random Stock Walker given their gee-whiz appeal, so lets run FB through our models.
The Random Stock Walker forecast through next year is displayed above (the black line is the stock price, the green dashed line is the upper 98% bootstrap prediction interval, the dashed red line is the attractor path, and the dashed blue line is the lower 98% bootstrap prediction interval). The attractor graph looks pretty good with small deviations around the attractor path (time to take earnings above the attractor path, time to buy below the attractor path). With the stock below the lower prediction interval right now, it would seem to be a good time to buy.
However, if we extend the forecast out to 2060, things do not look so good. The upside (upper 98% prediction interval) does indeed look great, but the downside (lower 98% prediction interval) is essentially zero. In other words, there is an equal chance that if you buy FB right now, at anytime in the future it could be worthless. One can invent any number of reason why this might happen but wide variability prediction intervals (high risk) is an essential feature of most tech stocks.
NOTE: One positive side of the FB state-space prediction model is that the stock price is being driven by growth in the world system. A negative side, as has been mentioned above, is that FB is a tech stock.
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