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Archive for the ‘Statistics’ Category

From Decision Science News:

What of the adage “the best predictor of future performance is past performance”? It seems less true than Sting’s observation “History will teach us nothing“. Let’s continue the investigation.

DSN did a nice analysis on a ton of baseball game out comes to see whether a team who had just won a game was more likely to win the next game.   There have been other studies like this involving basketball players “hot streaks.” Similar results revealed… well, it’s a crap shoot shot to shot, game to game.

Now, over the long haul winning records, shot percentages indicate there is some skill involved.  But at the micro level it just ain’t true!

Now why do we as fans, observers, interested parties believe in hot streaks, win streaks, etc. etc?   is it a side effect of some other useful thing we do in associating events?  or is there really some direct value in assuming immediate past performance indicates a similar future performance?

what can we test to figure that out?

the nba hot streak article has some insights….

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This is a really neat, quick piece about Usain Bolt’s impact on sports writers and their comments about humanity and sport.

Usain Bolt

Usain Bolt

A good example of our unexpected things can shape thinking and approaches.  My favorite take on this so far is over at ScienceBlogs.  I love it that someone plotted the model of 100m times to see how far out Bolt is on the predicted trajectory of speed improvements.

Maybe we’ve got the model wrong.  Maybe he’s an outlier and the model is right.

I have a prediction of my own:  after the fun of this track event is over… somebody is going to argue he’s doping.

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Update 3/29/09: Danny Sullivan correctly pointed out to me that he is a publisher and an advertiser.  I’ll disagree on the idea that he is a “real user”, by which I meant “regular user”, because he is not nor I am.  We study websites, traffic and human behavior – we notice and ignore and react to things very differently than a user just flying by to get the latest news and views.  I do agree with Danny that my argument mostly matches his… thus, I’m only calling out Clemons argument.

Update 3/28/09: Techcrunch keeps stirring this up.  Now Danny Sullivan replies…

The most damaging part of both of their arguments is that neither one is arguing Clemons original argument and rebuttal mostly fail to convince his claims about the death of Internet Advertising.  He’s conclusions don’t match actual data and experience from the perspectives of an advertiser, a publisher nor really a regular user.

These points are not defensible without real data:

Users don’t trust ads
Users don’t want to view ads
Users don’t need ads
Ads cannot be the sole source of funding for the internet
Ad revenue will diminish because of brutal competition brought on by an oversupply of inventory, and it will be replaced in many instances by micropayments and subscription payments for content.
There are numerous other business models that will work on the net, that will be tried, and that will succeed.

In fact, let’s consider some counter examples:

Someone sold 4 million Snuggies based on ads.  Did the people who responded to those ads not trust the ads?  Their behavior shows they did enough to fork over $15 bucks for a blanket with holes in it.  The better statement is some users don’t trust some ads.

Users do want to view ads.  Millions of people love superbowl ads and actually seek them out online and on their TIVOs.  Online only ads that people do want to view include the millions of mini games they play, youtube videos they watch, contests they enter.  A better statement is that some users to want to view some ads, especially when the ads are not engaging, useful or catchy.

Users do need ads.  Search engines and social graphs can only show you information about things that are already popular/reached tipping point.  They cannot show you stuff just coming out of the labs.  Users need ads to learn about new and different products and services.  And the only way to introduce people to new things is put new things alongside already known things.

Ads are not the sole source of funding for the internet. Anyone who is claiming this is what web companies think clearly has not really studied the industry or worked at a web company and/or companies that extensively use the web in their business models.

Ad revenue will continue to grow in the long run.  As long as businesses need to sell more product, more ad revenue will go into the market.  The difference is that the ad spend is spread among more and more entities, so individual businesses will get less ad revenue.

Many other business models already work. and more will be created.  Selling apps, selling computer time, renting server space, selling subscriptions, donor models, barters, licensing, premium access…. I mean, gosh.  I don’t think we lack for business models that work.  The media is simply pointing to the high profile failures of big media companies that haven’t figured out to how to shoehorn it’s model into the internet way of doing things.

Once again we see that pundits rarely represent the real story.  They don’t know the price of milk. Just talking to people in the industry and summarizing the conversation is not enough to predict the end of online advertising.

See below for rest of my original response.

—————

Despite the impressive length,  a recent TechCrunch guest feature on the failure of internet advertising fails to reveal what’s really destroying the ad model online.  Clemons neither states what he claims is actually failing and doesn’t really prove it is. Alas, I will still attempt to refute the possible implications of his claim.

It is not a particularly insightful observation that “The problem is not the medium, the problem is the message, and the fact that it is not trusted, not wanted, and not needed”. Of course people don’t like being distracted with ad messages.  That’s always been the case, that’s why marketers have to pay for ad placement.  Nothing new here.

Advertising itself is not broken nor will ever go away.  As long as companies have products they need to push into market, they have to advertise, regardless of nature of the medium.  Play with the language and state definitions all you want – advertising will always be a part of our lives and media experiences.

What’s wrong with the business models of sites that rely on advertising is the pricing, not the actual idea of advertising.  Spending in terms of dollars is down in all mediums, certainly.  However, the amount of advertising we’re exposed to is likely still growing.   I have a long post on all sorts of data points on this topic here.  The short of it:  marketers have a growing number  advertising impressions out there, everyone know’s how well they perform and thus the pricing is coming way down from the relatively overpriced “older” advertising models in print, radio and tv.  This shrinking pricing model puts pressure on the business from a margin standpoint and so the less efficient businesses fail.

Yes, I generally hate banner, text, billboard ads and neon signs like everyone else. Except when I don’t.  And when I don’t that’s valuable to the company that paid for that placement and it’s valuable to me to be notified of something I might have missed.  We’re just arguing price.

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An interesting approach to knowledge mentioned in Stephen Wolfram’s blog:

But what about all the actual knowledge that we as humans have accumulated?

A lot of it is now on the web—in billions of pages of text. And with search engines, we can very efficiently search for specific terms and phrases in that text.

But we can’t compute from that. And in effect, we can only answer questions that have been literally asked before. We can look things up, but we can’t figure anything new out.

Let’s see where this goes!

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Reproduced from  a private email by Mahesh Johari:

For most of the last 25 years we (as a nation) have been sold a story about investing in stocks for the long run.  Invest steadily, mindlessly, and over the long run stocks will earn almost 10% annual returns.  By the time this bear market has ended, this notion will be questioned by a great many.

I’ll give all of you a head start.

Let’s quickly review one of the greatest achievements of the past 15 years – the rise of the personal computer and the growth of the Internet.  During this time we saw two giants dominate this market – Intel (NASDAQ: INTC) and Microsoft (NASDAQ: MSFT).  They were the veritable Pippen & Jordan of the tech Bulls dynasty: nearly pure monopolists with gigantic profit margins, huge revenues, and fantastic cash flows.

Today, Intel’s share price closed at $12.08, the same level it was at when I turned 25 years old.  That was almost 12 1/2 years ago.  Let’s look at Intel closely and see what they have to show for this incredible run.

At the end of September in 1996, Intel’s share price was $12.08.  Adjusted for splits, there were 7.14 billion diluted shares outstanding.  The book value per diluted share was $2.09.

We could go into a brief academic debate about why I’m using book value instead of some other measure.  Book value is the accounting net worth of the company.  With some caveats, it is a reflection of value that takes into account all of what the company owns and all of its obligations.  The book value reflects the amount of capital the company has available to deploy productively in the course of business.

I use book value per share because one share of Intel essentially grants you ownership to that amount of book value.  If you simply hold that share, you could imagine that the value backing that share of Intel is growing by the same rate as the book value.  Book value is not influenced by the share price, which can fluctuate wildly with the market.

Compare it to your own situation.  If I asked how you have done financially over the last 12 years, I could look at your net worth 12 years ago, compare to what it is today, and have a pretty good idea of how you fared financially.  It’s the same idea.

Today, Intel’s book value is $6.80 per diluted share.  Over the last 12 1/2 years, it means that Intel has grown book value per diluted share at an annual rate of 9.94%.  Some of you will argue that I am not including dividends that were paid out.  Those dividends have totalled $2.25 over that time frame.  Including dividends, Intel generated annual rates of return of 12.50% over the last 12 1/2 years (assuming you didn’t reinvest the dividends).

That number sounds pretty good.  Until you realize that Intel was a near monopolist operating through one of the highest growth phases of their industry.  Think about that for a minute – a monopolist in a boom was only able to generate 12.50% per year in returns.  What does this imply for the 495 companies in the S&P 500 that are NOT monopolies, and are NOT going to be going through an incredible boom in demand?  A 10% annualized rate of return for the entire market suddenly sounds like a fantasy, doesn’t it?

So what the heck happened?  What about all those studies that touted how stocks would make 9-10% over long periods?  Is 12 1/2 years not long enough?

What happened is what always happens when people blindly follow historical statistics en masse.  The underlying behavioral model changes.  As naive shareholders piled in and stopped paying close attention to how the company was run, profits got transferred from shareholders to employees through stock options and bonuses.  Additional billions were blown on share buybacks at much higher prices.  Looking at the result after more than a decade of shareholder un-friendly behavior, it’s no wonder Intel’s results are mediocre.

The time to buy stocks for the long run will be when those that bought for the long run realize they have been fleeced.  When those people are so disgusted that they sell at low prices and the shareholder outrage forces companies to change their behavior – that is the time to buy stocks for the long run.  Price matters.  That’s how it has always been.

For those who like to check the numbers, I suggest the following:
Intel 2008 Annual 10-K:
http://idea.sec.gov/Archives/edgar/data/50863/000089161809000047/f50771e10vk.htm#301
Intel Q3 2006 10-Q:
http://idea.sec.gov/Archives/edgar/data/50863/0000050863-96-000040.txt
Intel splits (shown on chart):
http://finance.yahoo.com/q/bc?s=INTC&t=my

As a side note, if you actually bought that share of Intel in September of 1996, your rate of return was not 12.50% but 1.38% annually, assuming you didn’t reinvest dividends.  Ouch!

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Latest data has Oscars Ratings up about 6% (see here and here), a little above 30 million viewers.

This was inline with what I imagined.

If you’re looking for Winners and actual info on the show, here ya go and here.

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In the most “Duh, I knew that already” post of the decade…

It’s not all negative out there.  Some businesses actually benefit quite a bit in economically challenging times.

Some key examples:

I’m sure their are more examples.

Death, taxes, food, water, seeking work, support, debt… can’t escape those things no matter the economic conditions.

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