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/

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