What Reversion To The Mean means ?


image credit to asymmetryobservation.com
This is one of the best articles on the topic of “ Reversion to the Mean “ … just for reading.

The Realities of Mean Reversion by Jack Forehand, 

Validea's Guru Investor Blog



Quote “Mean reversion is one of the most powerful forces in investing. Whether it be the performance of asset classes, the fundamentals of companies, or economic data, almost everything in investing will revert to long-term averages over time.Unquote

Full article ( here )




Update on regression line for selected world stock markets.






** Although STI is moving above the long term mean, but is still much lower than other developed markets, even as compared to HSI.


Another quote from the article “ Investing is a game of probabilities. When something deviates from its long-term averages, the probabilities are that it will eventually revert back to them. And the longer it deviates and the greater the magnitude of the deviation, the higher the probability of reversion is. But that probability is never 100%, no matter how long a trend goes on. It is important to understand that when you bet on mean reversion, you are likely to be early. And it takes patience and discipline to get to a point where you are eventually right. Only then can you realize its benefits.

You may also find my previous blogs on “ Reversion to The Mean ( here )


How about using it on individual stock's valuation



Other than doing the fundamental analysis, I did check the regression line for certain stocks from time to time to see if it's overvalued base on long term mean value.  Obviously, Capital Comm Reit was one of the best performers among STI Index in 2017 and price continue to increase moving on to 2018 which resulted in the drop of its DIV Yield to below 5%.

I have decided to trim my holding in CCT since it is very close to +2STDV now and also as we fully understand that for REITs, the income is quite predictable and any increased in price will just force the Div Yield to move downwards.

Well, it is period for result announcement on companies listed on SGX and stays tuned for my next portfolio and dividend income update…


Cheers !!


Quote of The Day :

“The stock market is the story of cycles and of the human behaviour that is responsible for overreactions in both directions.” – Seth Klarman








** Disclaimer: This is NOT a call to buy or sell of any stocks mentioned above, it is just for illustration purposes, please DYODD ( Do Your Own Due Diligence ) prior using or acting on any information given.


Comments

Related Posts Plugin for WordPress, Blogger...

Labels

Show more

This Month's Top Blog Posts

2nd Qtr 2021 : Portfolio & Dividend Update

Crisis = Danger + Opportunity? (危机 = 危险+ 机会)

Dow Jones 125 Years : Investing For The Long Term

US vs China : Divergence of Monetary and Fiscal Policies

Investing in 2.96% p.a AAA Bond