Terms: Cone Of Probability

I'm going to spend some time early this year redefining some of the terms you see me use from time to time on this blog.  First up is the "Cone of Probability".  You've heard me in the past use the term the Cone of Probability or probability cone.  It's a term I've borrowed from meteorology, particularly in the study of hurricane forecasting.  In meteorology it refers to the probable path a hurricane can be expected to take and has a wide margin of error the further in the future the forecast looks out.  We use it when doing valuation analysis.  Here is our definition of this term. 

The Cone of Probability is our current assessment of the trading range within which we think stocks have the potential to trade during the described time period.  It is a probabilistic assessment based on a many factors.  Some of these inputs are: Earnings estimates, and whether those estimates are rising or falling, dividend yield, earnings yield and the current yield on the US 10 year treasury.  This is not an exhaustive list of all of the variables that are used in creating the cone.  The Cone of Probability is used solely for analytical purposes.  It will fluctuate with market conditions and changes to the data inputs.  Index prices can and have traded outside of the range of the cone.  The data supplied when we discuss the cone is for informational use only.  There should be no expectation that this price range will be accurate and there are no guarantees that this information is correct.