From: John Conover <john@email.johncon.com>
Subject: Will Silicon Valley get its mojo back? - Tech News - CNET.com; Was Re: Fwd: [RT] Buffett Forecasts Eight Bad Years
Date: 18 Jan 2003 04:53:27 -0000
I had a request to make some comments on:
http://news.com.com/2100-1017-981259.html?tag=fd_top
for some clients and friends, and it occurred to me after running the
numbers that I had been here before-specifically, regarding an article
in Businessweek, on 9/3/2001, that was found by Jeff Haferman, and
went through the NtropiX mailing list on August 28, 2001, (there were
three messages involved.)
Buffet made a pretty impressive call, saying in late August, 2001,
that stocks would tumble, and he was looking for an eight year
drought. He was probably right-at least for the NASDAQ; the numbers I
just did today, (January 17, 2003,) say February 16, 2001, to late Q2,
2008, (50/50 chance,) a little over 7 years.
Both e-mail follow, (the one from today, and the last-the three
combined-from August 28, 2001; the first which references working out
the prophecy of a crash from 1998, on, in one's head.)
John
John Conover writes on January 17, 2003:
> The technology executives in the attached are right-there is
> not much to be optimistic about for SV; caution would be an
> appropriate strategy.
>
> Using the value of the NASDAQ as a barometer of the health of
> the tech industry, the current deflation in the NASDAQ's value
> started on February 16, 2001, when it dropped below its median
> value on that date of 2425.38. That's when the NASDAQ became
> under valued. On an annual basis, it would be expected that
> there is a 50% chance of the NASDAQ remaining under valued for
> less than 4.396233 years, and a 50% chance that it won't. So,
> there is a 50% chance that on July 6, 2005, its value will be
> back above its median value, which on that date would be
> 3895.04.
>
> (Note: The NASDAQ, at is maximum, was 5048.62 on March 10,
> 2000-that is the date of the top of the "bubble" when it was
> overvalued by a factor of 2.4; that is NOT when the "bubble"
> ended.)
>
> Also, there is a 50% chance that the NASDAQ will bottom before
> about half the 4.396233 years, (i.e., by about April 29, 2003,)
> and a 50% chance after. When it bottoms, there is a 15.87%
> chance, (i.e., one standard deviation,) that the NASDAQ index
> value would be below 2209.76, (and, also, a 15.87% chance that
> it would be above than 4275.11 on that date.) Its median value
> on April 29, 2003 would be 3073.59.
>
> Note that these values are very "sluggish" around the 50%
> mark-the chance, that the bottom of the decline will occur by
> a specific month is:
>
> 30% by March, 2002
> 40% by October, 2002
> 50% by April, 2003
> 55% by November, 2003
> 60% by April, 2004
>
> John
>
> BTW, if you want to know how long it will take the median to
> get back to the NASDAQ's high of 5048.62 on March 10, 2000,
> the formula for it is 3073.59 * 1.00038272386^t = 5048.62,
> where t is in trading days past April 29, 2003, (there are
> about 253 trading days in a calendar year.) Just so you won't
> have to dig out your scientific calculator, its 5.1 years past
> late April, 2003, or about late Q2, 2008. In late Q2, 2008
> there is a 50% chance that the NASDAQ will be above 5048.62,
> and a 50% chance, less.
>
> But for business operations, timing the bottom is what is
> significant. For example, one would place (2 * 0.6) - 1 =
> 0.2 = 20% of a development/marketing budget at risk for
> a product intro in April, 2004 that depends on an economy
> recovery-so that the economy would not have to be drug
> uphill. That would be the optimal and maximal scenario.
>
And:
John Conover writes on August 28, 2001:
> BTW, that is the way:
>
> http://www.johncon.com/ntropix/FAQs.html#calculation
>
> was done-which turned out to be prophetic.
>
> If you look at it, it was not that difficult. The last loosing year
> for the US indices was 1993. By 1998, (when that series of
> prognostications started,) which was about 5 years into the "bubble",
> the chances of it continuing at least one more year would be
> approximately 1 / sqrt (5), or call it about 50%. So, forecasting a
> downturn was my best choice.
>
> John Conover writes:
> > How about 1 / sqrt (8) = 35.35%, or about 1 in 3.
> >
> > So, if you wanted to wager against Mr. Buffett's analysis, you would
> > bet that he has a 65.65% chance of being wrong.
> >
> > And, you would bet 2 * 0.6565 - 1 = 29.29% of what you could afford to
> > loose on the wager.
> >
> > John
> >
> > Jeff Haferman writes:
> > >
> > > Hmmm, I don't believe an entropic analysis would give a very
> > > high probability to 8 years of stagnation....
> > >
--
John Conover, john@email.johncon.com, http://www.johncon.com/