Comments on The Psy-Fi Blog: Value in Mean Reversion?

I really don't think that by combining the Com...

2010-03-23T11:46:34.145Z

I really don't think that by combining the Combining index-fund investing with Reversion-to-the-Mean investing is the best of all worlds. i think the m,market is pretty v volatile and nothing can be predicted.

It took me 10 years to learn to control my emotion...

2010-03-16T03:28:48.754Z

It took me 10 years to learn to control my emotions in investing, but one I did, I became a reasonably good value investor. It is not for everyone, though, and I like it that way.

To save your auto loan deal from going haywire it ...

2010-03-15T06:57:44.250Z

To save your auto loan deal from going haywire it is important you take care of it at its root. The root is at the financing and the insurance office.

Payday loans

I'm not convinced that knowledge is enough ...

2010-03-14T11:24:41.992Z
I'm not convinced that knowledge is enough to reach an investing Nirvana :)

We are in 100 percent agreement that knowledge alone will not do the trick, Tim.

My view is that we need to supplement knowledge of what works with emotional encouragement to do what works. We do that by promoting what works in articles and books and calculators and discussions boards and blogs and all that sort of thing.

People don't see today how much better investing could be if we only started doing what we have never done before. After we do it, we will look back and wonder why it took us so long to decide to do so!

People didn't appreciate all that computers could do for them until they started using them. You've got to take the first step to have any hope of realizing the benefits of the 50th step.

Rob

Hi Rob Agreed. All I'd add to this is that d...

2010-03-13T21:46:12.177Z
Hi Rob

Agreed. All I'd add to this is that dollar-cost averaging using indexers will get you a lot of this benefit without the dangers of behavioral reversion.

Although I, like you, believe it's possible to outperform this benchmark I think it's difficult to do without unusual emotional focus. From personal experience I'm not convinced that knowledge is enough to reach an investing Nirvana :)

mean regression won’t automatically make you a ...

2010-03-13T21:19:30.405Z
mean regression won’t automatically make you a better investor – a below average analyst will get below average results.

This is not an issue if you invest in index funds.

Combining index-fund investing with Reversion-to-the-Mean investing is the best of all worlds. There's no need to do any analysis whatsoever -- everything is built into the price of an index with the exception of overvaluation or undervaluation. And, with a Reversion-to-the-Mean filter added, you've got the overvaluation and undervaluation problems covered too.

This must give you better than average returns over the long run. As you note in the article, the majority of investors are buying and selling at the wrong times. If most are getting worse than average returns, those who are keeping their risk level steady (by lowering or increasing their stock allocation as needed in response to price changes) must get better than average returns.

The only way this would ever change would be is all investors got with the program. But in that event price volatility would be greatly diminished and we would have a far more stable and productive economy. So we would all get better returns that way.

This appears to me to be the proverbial free lunch. With dessert!

Rob