“Reversion to Mean” is the idea that history matters. We tend to live in the now and focus our attention on things that are different from what we expect. Heroes and losers. Normal is boring. Except normal carries a lot of information. It is almost impossible to distinguish luck from skill for an individual, because our lives are too short, we change too much, and there is too much noise. Like spinning a coin. A fair coin that has landed on heads 10 times in a row, still has a 50/50 chance on the 11th spin. If a tall man has a son, it is likely that his son will be shorter than him. Likely doesn’t mean definitely. It means that “normal” has muscles. Price isn’t normal. Sometimes it has short man syndrome, and sometimes it has tall man syndrome. Price isn’t value. It is a date between supply and demand. How much there is of something. How much is wanted. Both of those change. Stretch the time frame over how you value things, and always keep an eye on normal. Study our history and still the noise.
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