From: John Conover <john@email.johncon.com>
Subject: Re: (no subject)
Date: 7 Aug 2001 00:53:29 -0000
Sure, the 1 - 1 / sqrt (n) is the confidence interval, (technically,
the statistical estimate.) The real value is 1 - erf (1 / sqrt (n)),
but for n >> 1, erf () = 1.
Its the way the -C and -c options work for tsinvest.
John
Jeff Haferman writes:
>
> Can a confidence interval be attached to this analysis?
>
>
> John Conover wrote:
> >Cisco did almost everything right. Almost. They had the correct
> >numbers. Where they went wrong was in their interpretation of the
> >numbers; they were using regression analysis as a forecasting model.
> >
> >If you divide the average by the standard deviation of the marginal
> >growth in a market, add one, and divide that by two, that gives the
> >probability that a market is going to increase-according to entropic
> >economics and information theory. The average is the growth of the
> >market, and the deviation is a metric of the risk, (that's the way one
> >handles risk-reward.)
> >
> >But one then has to evaluate the accuracy of the calculated
> >probability of a market increasing, too; the probability has to be
> >multiplied by 1 - 1 / sqrt (n), where n is the interval length used in
> >the regression study.
> >
> >As fate would have it, it makes regression analysis inapplicable in
> >business models.
> >
> >The probability that a market is going to increase is almost never
> >higher than 55%, measured on daily information. If a calendar quarter
> >is used as the interval for the regression, (that's about 60 business
> >days,) one has 0.55 * 1 - 1 / sqrt (60) = 0.55 * 0.87 = 0.48, or about
> >48%.
> >
> >It is not wise to bet on less than 50% odds-but that's what Cisco did.
> >
> > John
> >
> >BTW, what should they have done? They should not have used regression
> >analysis. Since industrial markets are fractal, the 1 / sqrt (n) stuff
> >works on years, too. The Internet boom began, in earnest, in about
> >1995. By 1999 they should have been throttling manufacturing, since 1
> >/ sqrt (4) = 0.5, and 1995 + 4 = 1999. 2000 was when Cisco's problems
> >started. In short, they should have exploited the dynamics of the
> >data, instead of attempting to make sense out of it by smoothing.
> >
> >See:
> >
> > http://www.johncon.com/john/correspondence/981014184454.18095.html
> > http://www.johncon.com/john/correspondence/981014210544.18525.html
> > http://www.johncon.com/john/correspondence/981014222823.18931.html
> > http://www.johncon.com/john/correspondence/981014233807.19309.html
> >
> >for industrial market particulars, and:
> >
> > http://www.johncon.com/john/correspondence/990215192020.29398.html
> > http://www.johncon.com/john/correspondence/990905134341.23530.html
> >
> >for the US GDP. And,
> >
> > http://www.johncon.com/ndustrix/FAQs.html#linux
> >
> >is a series of internal e-mail where such concepts were used to
> >develop a strategic framework for a company. The company faired much
> >better than Cisco through the tecno-bust of late 2000.
> >
> >John Conover writes:
> >>
> >> Attached is a very well written article on the demise of Cisco.
> >>
> >> Interestingly, IP addresses from Cisco are often found in the
> >> logs of http://www.johncon.com/ndustrix/.
> >>
> >> John
> >>
> >> http://www.cio.com/archive/080101/cisco_content.html
--
John Conover, john@email.johncon.com, http://www.johncon.com/