GaveKal Research recently published a piece that was highly critical of the idea that profit margins
revert to the mean over time.
The question on whether returns
revert to the mean over time is probably one of the most fundamental ones to investing, for me.
One thing that is for certain is that these oscillations
revert to the mean over the long term, and can not be used to explain a natural secular warming trend, which is what the climate sceptics seem to be running on about recently.
Not exact matches
The main reason
to diversify is the fact that investments tend
to mean revert over time.
To help illustrate what's happening when stocks which appear to be high value on paper revert to their mean valuations over time, consider betting on a basketball gam
To help illustrate what's happening when stocks which appear
to be high value on paper revert to their mean valuations over time, consider betting on a basketball gam
to be high value on paper
revert to their mean valuations over time, consider betting on a basketball gam
to their
mean valuations
over time, consider betting on a basketball game.
It
means little
to press and harry all
over the pitch against United in order
to defend the manager's reputation (and your own) if going forward you
revert to your former lax approach and turn in performances a la West Ham, Zagreb and Olympiakos.
Failure
to act would
mean the city legally
reverts to the old Board of Education and community school boards, which presided
over the deterioration of public education in the five boroughs.
The above 2.86 % gordon equation result takes today's valuations,
mean reverts them
over three decades, but assumes no loss due
to selling underwater from your starting FIRE position.
VIX futures indexes are
mean reverting; funds benchmarked
to them should not be expected
to appreciate
over extended periods of time.
This
means that if fluctuates up and down, and although it might trend for a short period of time, it generally
reverts to a long term
mean over the long term.
The forward market for 1 - year implied volatility doesn't exist in any deep way, so the insurance company decides that it will have
to take its chances, and assume that volatility will
mean revert over longer periods of time.
Over the long - run performance of both companies and share prices generally
revert to the
mean.
The share of income that goes
to profits and interest also tends
to mean -
revert over time, so humility is needed when:
Because earnings measured
over shorter horizons such as one year are extremely volatile and
mean reverting, the ratio of prices
to current earnings does not predict future long - term returns.
Heredity plays a role, but
over time adult heights
revert to the
mean.
Mean - reversion is involved in value investing, in the sense that return on equity for firms tends
to mean -
revert over time.
Or perhaps a flood of new investment capital
over the last decade or so has produced a lofty ending valuation, which has yet
to mean revert, 12 and which would lead the regression
to underestimate the true power of valuation for the low beta factor.
The key fact is that
over timeframes above a year, both performance and prices tend
to mean revert.
The precise advantage of rebalancing varies based on the targeted asset mix, but the strategy consistently beats portfolios that are not rebalanced for a simple reason: Investment results «
revert to the
mean»
over long stretches.
Since the nature of a stock's valuation is
to revert back
to the
mean over time, we should try
to buy undervalued stocks and avoid overvalued ones.
However, we do know that
over the long - term, valuation levels and interest rates have tended
to revert to the
mean and that we are far above that
mean with respect
to market valuations.
Over time, the process tends
to drift towards its long - term
mean: such a process is called
mean -
reverting.
Yet, ENSO also
reverts to a
mean of zero
over the long term, so that the secular forcing is what matter in the end.
Judith's point that AO and PO oscillations and multidecadal waves which may go in 60, 80 or 100 year cycles is completely ignored by saying that Natural variation should be ignored
over a long time as it
reverts to the
mean.
The reason for this is that the barycentric oscillation
reverts to a
mean of zero as the positive and negative excursions balance out
over the years.
WebHubTelescope: The beauty of the SOI is that it contributes no bias
to observations, as by definition it
reverts to a
mean of zero
over long time periods.
The beauty of the SOI is that it contributes no bias
to observations, as by definition it
reverts to a
mean of zero
over long time periods.