Reversion to mean is the hard fact, it is true for life, markets, business, and even nations. In markets, most reactions to upsides and downsides are a result of psychological swings of investors. These swings resemble the movement of a pendulum. They have a huge impact on the economic and business cycles thereby impacting the world of investing.
Markets are driven to extremes by greed or fear, and little to no time is spent in the neutral phase, which is the phase of rationality. These swings come at times when investors need to remain rational above everything else. However, like a pendulum it is important for the markets to revert back to this phase from one extreme so that it can continue its journey to the other.
Although this phenomenon is prevalent in nearly every walk of life, the reactions are a lot more extreme in the world of investing.
“In the real world, things swing between “good” and “not so hot” but in in the world of investing, they swing between “flawless” and “hopeless”, spending no time at the “happy medium.”
We believe that real opportunity exists in between these extreme swings, and we can help investors in navigating these swings and tapping into the opportunities created in between.