day 80

digital darwinism 2: study in chaos

Figure 1. Buy/Sell Points in Netscape Stocks over recent months. The Target line is what the stock price should be, and the Buy/Sell signal is computed from chaos theory. Bellcore guru Robert Lucky says, "it seems to me almost a case study in chaos theory," in reference to the WWW (Computerworld, June 3, 1996, p. 70). I think he nailed it on the head. In fact, he nailed the whole computer industry on the head. Competitors are behaving more like spraying machine-guns than straight-shooting rifles. When one of them hits a target, the sparks fly and huge sums of money exchange hands. More often than not, however, trigger-happy players aim poorly, shoot crooked, or simply don't know a target from a Luddite. Are developments in the computer industry simply a demonstration of Darwinism, or is there a hidden pattern? Let me pick apart Lucky's favorite business. The Internet manifests digital Darwinism through the stock prices of its start-up companies. This is clearly evident in the ups-and-downs of share prices of Netscape (see Figure 1) and other public companies whose shares trade at unrealistic highs. But these guys are headed for a fall because of digital Darwinism. Figure 1 shows my home-grown stock market timing algorithm - based on mathematical chaos - that tells me when to buy, sell, or hold. It is a simple algorithm, called the bounce theory, based on the notion of instability in physical systems due to unsustainable rapid change. And Netscape's stock is a classic example of a system undergoing unsustainable change. Why? Because of (r)evolution in the Internet biz. And, because Darwinian evolution is driven by chaos - just as Lucky claims. Even though I have been able to make about 150% annual return on the stock market by modeling the chaos of digital Darwinism, my main point is not to tell you how to make money on the stock market. After all, if everyone knew how, it would ruin it for me! My point is this: the whole computer industry enchilada is driven by digital Darwinism. And, this Darwinism can be understood only by understanding the theory of mathematical chaos. Stay with me, here.

digital darwinism 1 Daily Dose Index