From: John Conover <john@email.johncon.com>

Subject: Re: (no subject)

Date: Mon, 6 Aug 2001 17:07:54 -0700 (PDT)

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/

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