So, going forward, will QQQ be a better investment, or is it going to “revert to the mean”? The trend is a very fickle friend.
“The trend is a very fickle friend.”
Well said.
Marty Zweig used to say “The trend is your friend.”
The worst investment I ever made was in an Invesco high tech mutual fund. It had gone up and up and up, and I wanted some of that action, even if belatedly. I lost all the money I invested. I’ve seen Invesco TV ads recently. Not me!
Looking up Marty’s quote, I found another:
“The trend is your friend except at the end where it bends.”
Frankly, I find your words more succinct.
Yes, exactly.
One of my favorite statistical forecasting tools is the James Stein estimator. It basically says that everything does move toward the mean.
If you look at “natural” systems you will often see logistic curves where things grow exponentially at the start and then pass a transition point where their grown starts to slow.
One can argue that the stock market is not a “natural system.” Far to often the stock market is influenced by politically caused events, whether it is inflation, wars, price controls, or Federal Reserve Board actions.
Similarly, when one does traditional Monte Carlo analysis of a stock portfolio based on a selection of “past years” on is saying that the “mean” influences the projection of the future. The problem is that each of the past years values are not independent nor equally probable, as is assumed by Monte Carol analysis.