The main reason to diversify is the fact that investments tend to
mean revert over time.
Jeremy Grantham recently pointed out that since the early 90's, stocks have
still mean reverted, however have done so around a persistently higher mean.
Percent returns and prices are not the only measures
considered mean reverting; interest rates or even the price - earnings ratio of a company can be subject to this phenomenon.
Looks like I can't really get any comparison here but wanted to point out that brexit was a geopolitical event vs. last weeks oversold parabolic melt up in s & p
price mean reverting.
And, if the stocks
do mean revert slower, the magnitude of the stocks movement back towards its» mean will be smaller because some of the stock's reversion will occur because of time (not price).
When a high CAPE
mean reverts toward the historical norm, the resulting forward return for the equity market falls meaningfully below average.2
If I'm concentrating a la Warren Buffett, I'm definitely more individual business - focused and am not as wrapped up in the idea of how companies
generally mean revert.
As an analytical tool they can be used to assess whether a currency is looking stretched vs its longer term trend (for trending currencies) or vs its long term average (
for mean reverting currencies).
First, profit margins in the U.S. seem to have
stopped mean reverting in the old, normal way, and second, some real estate markets have bubbled up and then stayed there at high prices.
Moreover, a trading strategy based on the CIV -
OIV mean reverting spreads generates significant risk - adjusted return.
We should note that this index is
naturally mean reverting as expectations rise with better than expected data and vice versa.
By ignoring the strong leadership roles that women like Deborah and Phoebe and Priscilla played in the Bible (what McKnight calls WDWD passages) because of what Paul said to specific churches about
silencing means reverting to our fallen state rather than our new creation state.
Buy
Draxler means reverting back to 451 formation is Alexis Ozil Draxler behind Lacazette which is pure class, but going to 451 means need a good CM to control midfield...
That was addressed in the JManga closing post ~ the licenses revert when JManga closes their reader (I think the last day 20May, which would
mean they revert 21May), no clue what will happen after that and don't expect to hear anything in the short term future ~ it will be certainly months and quite possibly years until something new gets sorted out for Manga that are not getting a primary North American release.
Actually, if you see the corporate earnings share of GDP (the E part of the equation) is not
precisely mean reverting the last 30 years.
This is my explanation: when the VIX is high, the equation anticipates mean - reversion, and so gives a value that reflects what the S&P will be worth once
volatility mean reverts.
What has been your experience with non-equity related markets and their
respective mean reverting tendencies e.g. grains, metals, softs, FX, rates etc.?
Nearly everybody get access to instant news flow, that's why each event's time window shortened so much helping
so mean reverting regime and not trend following.
It's incredible
how mean reverting systems always beat trend forrowing ones... The same I experience with my patterns trading.
Worse, we should expect this revaluation alpha to
mean revert because strong recent performance frequently leads to poor subsequent performance, and vice versa.
The stock market will
inevitably mean revert to the economy's direction when it deviates from the economy in the short - medium term.
Rather we must rely on the statistical base case for undervalued, money - losing securities — that they will
spontaneously mean revert toward a state of earning power commensurate with their assets.
It's simply not predictive, mostly because it fails to take into account the
highly mean reverting nature of profit margins.
High margin, high growth companies
usually mean revert due to: (1) new entrants and future competition; (2) new, disruptive business models; and / or (3) new technologies that make a company's product obsolete.
Five - year growth rates are
clearly mean reverting, and I love to see an intuitive strategy beaten by a little reversion to the mean.
He explains that these methods are backward - looking, do not reflect interest rates, and assume that margins will
mean revert without any corresponding change in employment or gross revenue.
Jeremy Grantham recently pointed out that since the early 90's, stocks have
still mean reverted, however have done so around a persistently higher mean.
And if you understood why domestic profits
do mean revert, then you would know why foreign profits won't.
In the last few years we have witnessed the tendency for gold to make quick moves down, only to reverse and
mean revert back to the price from which it began and then for price to move higher.
How can we avoid the crowd following,
mean reverting tendencies that arise from looking to others as a source of investment ideas?