Mean Reversion and The Bell Curve
Over a three-year time period, stock prices tend to mean revert. This has spawned numerous investment approaches which try to squeeze capital gains out of those reversions. Classic deep value investing, as popularized by Benjamin Graham at Columbia Business School, taught that you would succeed by buying fifty-cent dollars and selling them when and if they reverted to the mean. The “Dogs of the Dow”strategy of buying the ten highest yielding Dow stocks was born out of mean reversion.