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October 23, 2003
Points, Lines, and Curves
Posted by Arnold
I try to summarize one positive lesson from Pop!tech--the need for nonlinear thinking.
However, the odd thing about nonlinear forecasts is that they can be wildly wrong in the quantity dimension without being far off in the time dimension. Even at 3x growth, demand will catch up to capacity within a few years. One can argue that the telecom industry's mistake was not so much the amount of capacity that they built as the high-leverage way in which it was financed. High leverage only works if you can predict the quantity demanded accurately at a given point in time. High leverage is a good idea in a relatively linear world, but not a good idea in a nonlinear world.
Rodney Brooks offers another example of nonlinear thinking--he thinks that we will be surfing the Web via brain implants in the not-too-distant future.
Comments (1)
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1. Brad Hutchings on October 23, 2003 09:03 PM writes...
Excellent essay. I often wonder how people survive without a basic understanding of calculus and Newtonian physics. Not that you need to be able to work out the math (unless you are that guy who just plunged down Niagra Falls without a barrel), but to understand that when something is accelerating toward you, you definitely need to get out of the way and why shooting bullets into the air isn't a good idea.
Another example of point thinking is in Dana Blankenhorn's recent blog on Amazon stock price: http://www.corante.com/mooreslore/20031001.shtml#57271
Dana suggests that based on the P/E ratio of this quarter's results (and projecting them over the year generously), Amazon is in a bubble. Perhaps, but his analysis is very static in that retail strengthens considerable during the holidays, and also ignores that Amazon can continue to use technology to differentiate its shopping experience from brick and mortar competitors. Case in point, today you can search through the text of thousands of books that Amazon sells!
Perhaps Dana is right. I wonder if Arnold agrees with him at this point. But so what if he is? We should then all short AMZN, right? This reminds me of something I read recently about a professional gambler who plays poker at the casinos. When told that everyone knows you can't win against the house playing poker, he says he doesn't count on winning from the house, but from the other players at the table. In other words, point and linear thinking aren't much help in figuring out how to profit from the current AMZN stock price.
-Brad
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