Mean Reversion in Markets: What Goes Up Must Come Down?
Many Happy Returns
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Mean Reversion in Market Valuations
This chapter explores the idea of mean reversion in stock market valuations, focusing on the elevated forward price-to-earnings multiples in the US compared to historical averages. The discussion also examines the implications of current market conditions on investment strategies, particularly the contrasting valuations of small-cap and large-cap stocks. Additionally, it delves into the cyclical nature of market psychology and the potential factors driving profit margins, suggesting that current trends may revert to historical norms.
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