QVMS - Nasty Mean Reversion

• Assets which are dramatically below fair value will have a very high likelihood of rallying toward fair value and beyond to a nearly opposite extreme, while those that have become the most overpriced relative to fair value will have a powerful tendency to plummet to fair value and beyond to a similarly undervalued bottom.
• Only a tiny minority of investors will structure their net worth to anticipate this process, since when assets are the most overvalued, they appear to be the most likely to continue climbing, while assets which are the most out of favor and the best bargains will appear to be hopeless and inferior.
• This is one of the primary reasons that we have experienced all-time record inflows into U.S. equity funds in 2021. Recent market participants are so confident that they are far more concerned about missing out on gains than they are about the risk of losing money.

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