Would like to share this great article on subject of “Regression to Trend/Mean”:

“About the only certainty in the stock market is that, over the long haul, over performance turns into under-performance and vice versa. Is there a pattern to this movement? Let's apply some simple regression analysis (see footnote below) to the question.

Below is a chart of the S&P Composite stretching back to 1871 based on the real (inflation-adjusted) monthly average of daily closes. We're using a semi-log scale to equalize vertical distances for the same percentage change regardless of the index price range.”

As I mentioned before, although market tend to reflect the underlying economics or business factors in the long run but it do deviate from time to time. Like what the great and father of “Value investors” Benjamin Graham described in his famous phrase of “ Mr Market” , where sometimes market could