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  • Mayor Bloomberg's Comparison Of NYC Homicides Rates And Wall Street's Ratio Analysis [View instapost]
    See what Mayor Bloomberg's Comparison of Homicides Rates means in the broad context of y/x ratio analysis routinely employed in a wide range of topics.
    Jun 17 04:10 AM | Likes Like |Link to Comment
  • Tesla Motors: Linear And Nonlinear Analysis For Profitability [View instapost]
    The following may also be of interest Here I have continued to use baseball statistics to illustrate some fundamental concepts in data analysis, not generally used in the "soft sciences" like financial, business, social and political sciences and even economics. Here's the link
    May 29 02:47 AM | Likes Like |Link to Comment
  • Trust Me, The Financial World Will Change Forever If Wall Street Starts Analyzing Financial Data Like We Do Baseball Statistics: Miguel Cabrera [View instapost]
    In the updated version (uploaded today), I have provided additional calculations illustrating who the Cabrera's Hits "jump" from one parallel to another in the At-Bats-Hits diagram. This "jump" between parallels is a manifestation of the changing work function, which in turn means a slowing down of the rate of increase of the batting average. The "jump" between parallels occurs whenever the player goes through zero hits. Besides the opening game of the season (5, 0), Cabrera went through other games with zero hits: (4, 0) on April 7 and April 13, for example, which lead to a "sidewise" movement on the At Bats-Hits diagram. These "missing hits" change the work function and therefore reduce the batting average.

    The ideas can be extended to the analysis of many other problem, notably the profits-revenues problem of interest to Wall Street, the traffic fatality problem (of interest to all of us) and so on.

    Here's the link to the updated version:
    May 27 02:27 PM | Likes Like |Link to Comment
  • Trust Me, The Financial World Will Change Forever If Wall Street Starts Analyzing Financial Data Like We Do Baseball Statistics: Miguel Cabrera [View instapost]
    Instead of a table of At Bats and Hits, imagine a table of revenues and profits We should be analyzing the financial data, exactly as described here with the batting stats. Instead, correct me if I am wrong, all I see is a focus on the ratio y/x = profits/revenues with no attempt being made to determine the nature of the x-y relation. This has been discussed in other articles that can be found at the same website. The appearance of a maximum point on the profits-revenues graph for several leading companies (such as Ford Motor Company, South West Airlines, Yahoo, Air Tran to name a few), in particular, has escaped the attention of all business leaders, Wall Street financial analysts, and even teh CEOs of the companies just mentioned.
    May 26 12:19 PM | Likes Like |Link to Comment
  • Tesla Motors: Linear And Nonlinear Analysis For Profitability [View instapost]
    Thanks, Asim for your comments and sorry for the late response. I am NOT a frequent visitor here -- mainly because I am still so frustrated with being unable to upload documents properly. So, I post them at scribd and leave a short summary here.

    The nonlinear equation, called Wien's law in blackbody radiation physics, and Maxwell-Boltzmann distribution, are both identical mathematically speaking although their physics is very different. Of all models from physics that can be applied to financial and economic data analysis, the nonlinear law called Wien's law, also used by Einstein in 1905, is the most useful. In particular, I think the idea of a work function that Einstein develops in his photoelectricity paper, if fully understood and applied outside physics, will change the so-called soft sciences. That is what I have tried to focus on. Getting distracted with too many other models, and getting fascinated with nonlinear models, is IMHO, not a very good idea. A few years ago, I tried to present the same ideas in another forum and was mocked and called a fool. Now, the same model that I tried to describe then has been proved to be true beyond my wildest dreams. In particular, financial data for several companies (unfortunately due to the financial crisis) has now revealed a maximum point. GM's profits-revenues graph shows a maximum point and it was forced into bankruptcy. Other companies are operating past their maximum point and struggling. Unfortunately, most business leaders, even the CEOs of the companies (like Ford Motor Company) do not know that their company is operating past the maximum point.

    Now, that brings me to your most important question. What is the meaning of the parameters m, n, and a in the model and why is "a" so small? I wish I could answer you fully. But, here is a partial answer. The nonlinear model is a generalization of the linear model, y = hx + c, where it is very clear what the slope h and the intercept c mean. This is discussed in almost every article that I have written. Both "h" and "c" can be related to the fixed cost, unit variable cost, and the unit price. Please read the article on Tesla, or on Google, or Apple, or Microsoft.

    Since the constants h and c in the linear law can be both positive or negative, we have three cases and this then leads to the nonlinear law as well. So far, I have NOT related the parameters m, n, and a in the nonlinear law to the three constants - fixed constant, unit variable cost and unit price - in the financial model. For the linear model it is possible but not yet for the nonlinear model.

    Finally, why is "a" in the nonlinear model so small? At this stage, it is simply a fitting parameter. I have generally used value of the exponent "n" as 0.6667 or 2/3 based on what we see in physical processes. Once n is fixed, m can be fixed using just a few points and least squares analysis. Very rarely we see deviations from the "pure" power law (case of a = 0 with n < 1 of n > 1). Tesla is one rare example where we see deviation from the power law. Hence, all I did was to "fit" the model to the observed value.

    Without appearing to flatter myself, if all this is accepted by the large majority in the financial and business world, we would where physics was when Wien proposed his law, purely as a curve-fitting model. There was no deeper understanding. Although I have been able to show that Planck's law can be generalized to financial world, I have NOT yet given a meaning to each of the parameters. That, may not be what I have to focus on.

    I strongly believe that I must simply focus on getting the idea of the linear law and the work function accepted by the financial and economic world. If people start seeing the problem with the use of the y/x ratio when the law is y = hx +c, that would be a BIG BIG step. The rest that you, Asim, are interested in, will follow. Thanks for your thoughtful comments. I hope I have added some clarity here.

    Do look at the baseball analogy that I have posted today.
    May 26 06:19 AM | Likes Like |Link to Comment
  • Tesla Motors: Linear And Nonlinear Analysis For Profitability [View instapost]
    The simpler power-law, y = m*(x^n), can be rewritten, after taking logarithms, as logy = n logx + logm. Hence, the graph of log x versus log y, should be a straight line, with a slope n and intercept log m. Thus, we can fix m and n and fit a nice smooth curve to the data in Figure1. This is illustrated in Figure 7, on page 22 of Ref. [2]. The constant n = 0.70, or roughly 2/3 (this value of n is commonly observed when we study the behavior of many complex systems, including materials processing experiments that I did during my doctoral thesis work at MIT). The decreasing slope (since n < 1) means there is an intersection point with the breakeven line y = x. However, if we look carefully at the data, we see that at the highest revenue, there is a deviation from the power law curve. Hence, we fit the exponential term, and this allows the determination of the constant "a". If these extrapolations hold, we can predict the breakeven point, see Figure 9. The validity of this line of reasoning is supported by other calculations presented in Refs.[1] and [2]. For completeness, it is worth noting that the experimental observations on the radiation spectrum of heated bodies (also called blackbody radiation) were analyzed using the logic just presented, before Max Planck developed his quantum theory, see additional discussion of this point in Ref. [2].
    Mar 2 06:45 AM | Likes Like |Link to Comment
  • Tesla Motors: Linear And Nonlinear Analysis For Profitability [View instapost]
    The 2012 quarterly data presented graphically in Figure 1 shows that costs are increasing with increasing revenues but at a decreasing rate. Hence, the data can be analyzed using a nonlinear model. The intersection point of the costs-revenues curve with the breakeven line on such a diagram then gives the breakeven revenue. The breakeven line has the equation y = x. Hence, the breakeven point is determined by solving the equation y = x = m*(x^n)*exp(-ax). It is easier to just prepare a graph, as illustrated in the references cited above. This is done very easily using modern computer programs such as Microsoft Excel.
    Mar 2 06:03 AM | Likes Like |Link to Comment
  • Is Trulia Worth $595 Million? Unlikely. [View article]
    The valuation of Trulia, as noted here is truly astounding, especially for a company that has yet to report a profit. Yes, it is highly unlikely that the company is worth more than half a billion dollars.

    At least, Zillow, its closest rival, has reported a profit for 4 out of 14 quarters. I have recently analyzed the profits-revenues data for both Trulia and Zillow (see Instablogs here with links to the full length articles). The purpose of the profits-revenues analysis is to provide a scientific basis for future revenues and profits projections.
    Sep 24 06:07 PM | 1 Like Like |Link to Comment
  • The Trulia IPO: Analysis Of Profits-Revenues Data [View instapost]
    I have just completed the analysis of Zillow's profits and revenues data and posted an Instablog, which should be approved soon.
    Sep 22 04:36 AM | Likes Like |Link to Comment
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