How does such a strategy work on historical markets? Do you have a principled way of identifying these below-mean stocks? Low P-E ratio? Political conflict?
I am not an expert here, but I am getting advice from an expert. I believe it is a combination of things like low P/E ratio, low price-to-book, and also whether the investment is diversified (one individual company could easily not mean revert by going bankrupt. I think the next step up it is a mutual fund in one market sector, and then one country, and then diversified across multiple countries.) I believe that political conflict would result in low valuations, so you do not need to specifically look for political conflict.
Hmm I thought widely traded markets were pretty efficient with regard to publicly available technical information like that. The thing is that if you’re using simple statistics like those, why not see how this would’ve performed on stocks traded 20 years ago? If they are successful on recent historical data, then why not quit one’s day job to raise a fund of many millions of dollars to trade on that basis?
There are people who do this, like Jeremy Grantham: https://en.wikipedia.org/wiki/Jeremy_Grantham . We get tips from him in part. The difficulty with retaining investors with this strategy is you will often miss out on big returns when markets are overvalued, like the US in the last few years.
How does such a strategy work on historical markets? Do you have a principled way of identifying these below-mean stocks? Low P-E ratio? Political conflict?
I am not an expert here, but I am getting advice from an expert. I believe it is a combination of things like low P/E ratio, low price-to-book, and also whether the investment is diversified (one individual company could easily not mean revert by going bankrupt. I think the next step up it is a mutual fund in one market sector, and then one country, and then diversified across multiple countries.) I believe that political conflict would result in low valuations, so you do not need to specifically look for political conflict.
Hmm I thought widely traded markets were pretty efficient with regard to publicly available technical information like that. The thing is that if you’re using simple statistics like those, why not see how this would’ve performed on stocks traded 20 years ago? If they are successful on recent historical data, then why not quit one’s day job to raise a fund of many millions of dollars to trade on that basis?
There are people who do this, like Jeremy Grantham: https://en.wikipedia.org/wiki/Jeremy_Grantham . We get tips from him in part. The difficulty with retaining investors with this strategy is you will often miss out on big returns when markets are overvalued, like the US in the last few years.