Mean Reversion
Graham & Dodd start their famous book Security Analysis with this quote:
“Many shall be restored that now are fallen,
and many shall fall that now are in honor”
History shows that what goes up must come down and what is down is likely to go up.
In a previous post, we closely looked at the returns of various sectors in India, which substantiates this reversion to mean argument. We update the 2024 data and this is how the different sectors stack,
It is clear that what underperforms eventually rebounds, while what is currently outperforming will eventually experience a downturn. Look at a few examples,
Pharma
Pharma has been on an upswing after a long underperformance in 2016-2019
Autos
The rise of Autos from laggard to the top
IT
The recent fall from grace and the subsequent rise
💡Banks have been laggards the last couple of years. Just saying!
As another new year dawns, long-term investors will do well to focus on the overlooked areas that the market has abandoned. While the popular sectors grab attention, better opportunities may lie in the neglected corners, with a higher margin of safety.
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