It suggests to me that I have in general been over-intellectualizing the working of the market for a few decades. I have had too strong a belief that investors would at least be influenced by past data in a sensible way. The market, however, appears not to care at all about the past or to learn much from it. This model for sure seems to say that for 92 years, at least, the market has with remarkable consistency been a coincident indicator of superficially appealing variables that in a strict economic sense have been inappropriate, and that have caused spectacular and unnecessary market volatility. The model is apparently a reflection of human nature and, of all factors influencing the market, human nature, as economically inefficient and unsophisticated it may be, seems the least likely to change.
- Jeremy Grantham (GMO)
I never miss Jeremy Grantham and Ben Inker of GMO. Grantham’s recent writings have been startlingly honest in their tacit admissions that mathematical formulas can only take us so far in our understanding of the markets. The human element in the investment game is unchanged throughout history, but it remains fundamentally elusive to those who would seek to quantify it or predict its next bout of caprice.
The meanest reversion is the one that refuses to revert in a timely enough fashion.