Time for a Commercial Message

While the markets bide their time waiting for the Almighty powerful Oz of the banking world’s economic statement release this morning (11 am PST), I thought there is no better time than now for a teachable moment. You quite often hear me speak of reversion to the mean (rtm) being one of the most powerful forces in investing. As it turns out 2016 is a big mean-reversion year. Take a look at the performance of the 10 best performing S&P500 stocks from 2015 year-to-date. On average, those 10 stocks were up 72% in 2015. In 2016, their average return is lagging the S&P500 by being up 4.3%. One of them was acquired in September 2015, so I am showing only 9 for 2016.

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Take a look at the 10 worst S&P500 performers of 2015. On average, they lost about 60% in 2015. Year-to-date, they are up 17%.

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Like everything in investing, mean reversion doesn’t always work (I still have my shares of General Buggy Whip Co. that I was sure would eventually get back above $10). Nor do you know when the reversion will actually start so timing is always a challenge.  Regardless, great investors should keep good companies that are well managed and whose stock prices have punished on their radar. At some point in the future these types of rtm opportunities can have explosive growth and as such deserve a place in everyone’s portfolio.  

I can’t wait for 11:01 so the markets can return back to their regularly scheduled programming.