# Re: (no subject)

From: John Conover <john@email.johncon.com>
Subject: Re: (no subject)
Date: Mon, 6 Aug 2001 17:07:54 -0700 (PDT)

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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
>
>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/

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