This is part of my intermittent series on price, one of the most important and commonly encountered considerations in investing and trading. For this post, I will talk about one of the theories used in deciding a buy or sell call: the reversion to the mean. According to Investopedia, reversion to the mean (or mean reversion) “is a theory used in finance that suggests that asset price volatility and historical returns eventually will revert to the long-run mean or average level of the entire dataset”¹. From the definition, we can see two things: firstly, mean reversion implied that the price of an asset (or security in our context) would go back to its long term mean or average value. Secondly, we could expand the mean reversion theory to apply on other measures and ratios such as returns, dividend yield, price-to-book, etc. The gist of mean reversion is that, no matter how much a value fluctuates across a...