Reversion To The Mean
We can have a “reversion to the mean” discussion on real estate, stocks, or just about anything. What is Reversion to the Mean? This is a theory suggesting that prices and returns eventually move back to the mean or average.
If you want to be a successful investor of common stocks conventional wisdom says you should spend lots of time analyzing companies or mutual fund managers and then try to pick the best ones. That is fine, but is a mistake if you are solely relying on that. If you want to be a successful investor of common stocks forget about using solely conventional wisdom, and also focus on reversion to the mean. You can be lucky and pick stocks and mutual funds without doing a lot of analysis. Or you can build a diversified portfolio with a clear understanding of the role that reversion to the mean plays in the stock market. And this also holds true in the real estate market and with many other things. Don’t rely solely on professionals, do your own research on the house or assets you may want to buy. Read More
