Why is Reversion to the Mean Ignored so much in Stock Picking?

[william the wie]

There are dozens of ways to determine relative under valuation and over valuation in issues and over time, usually six months or less, there is at least some reversion to the mean valuation. There are huge numbers of models that tend to out perform the market based on this one principle and yet they are so rarely used, why is that?

 

[DarkFury]

There are dozens of ways to determine relative under valuation and over valuation in issues and over time, usually six months or less, there is at least some reversion to the mean valuation. There are huge numbers of models that tend to out perform the market based on this one principle and yet they are so rarely used, why is that?

Never look to market managers on how something will preform. Look to its use and need. Avoid ALL stock that places you in a middle man position because that's a big red flag you WILL lose money. I learned my lesson on that after Enron. They never had a REAL product just a means to that of another.

 

[SYTFE]

There are dozens of ways to determine relative under valuation and over valuation in issues and over time, usually six months or less, there is at least some reversion to the mean valuation. There are huge numbers of models that tend to out perform the market based on this one principle and yet they are so rarely used, why is that?

Never look to market managers on how something will preform. Look to its use and need. Avoid ALL stock that places you in a middle man position because that's a big red flag you WILL lose money. I learned my lesson on that after Enron. They never had a REAL product just a means to that of another.

HAHAHAH......you bought Enron? lol

 

[DarkFury]

There are dozens of ways to determine relative under valuation and over valuation in issues and over time, usually six months or less, there is at least some reversion to the mean valuation. There are huge numbers of models that tend to out perform the market based on this one principle and yet they are so rarely used, why is that?

Never look to market managers on how something will preform. Look to its use and need. Avoid ALL stock that places you in a middle man position because that's a big red flag you WILL lose money. I learned my lesson on that after Enron. They never had a REAL product just a means to that of another.

HAHAHAH......you bought Enron? lol

At the time I was using a manager. Now I do it myself.

 

[SYTFE]

There are dozens of ways to determine relative under valuation and over valuation in issues and over time, usually six months or less, there is at least some reversion to the mean valuation. There are huge numbers of models that tend to out perform the market based on this one principle and yet they are so rarely used, why is that?

Never look to market managers on how something will preform. Look to its use and need. Avoid ALL stock that places you in a middle man position because that's a big red flag you WILL lose money. I learned my lesson on that after Enron. They never had a REAL product just a means to that of another.

HAHAHAH......you bought Enron? lol

At the time I was using a manager. Now I do it myself.

Man....how badly did you get burned? How much????

 

[DarkFury]

There are dozens of ways to determine relative under valuation and over valuation in issues and over time, usually six months or less, there is at least some reversion to the mean valuation. There are huge numbers of models that tend to out perform the market based on this one principle and yet they are so rarely used, why is that?

Never look to market managers on how something will preform. Look to its use and need. Avoid ALL stock that places you in a middle man position because that's a big red flag you WILL lose money. I learned my lesson on that after Enron. They never had a REAL product just a means to that of another.

HAHAHAH......you bought Enron? lol

At the time I was using a manager. Now I do it myself.

Man....how badly did you get burned? How much????

I don't recall now and its not worth digging out tax records to find.

 

[william the wie]

Me, I don't even try to figure out which way the market or sector is going just relative undervaluation vs. the market. My constants are:

price as in it's 100x easier to find a buyer or seller for a $5/sh stock than a $50/sh stock

the issue must be optionable I want positive cashflow going in and getting out.

Dividends matter.

With 29 fundamentalist screens available from my broker for free I theoretically can pick over 400 optimal issues to invest in while sticking with the S&P to make sure . As a practical matter 25-50 at roughly $2,000/issue exceeds my span of control because that means 75-150 separate lines to deal with shares, puts and calls drives me crazy keeping track of everything.