If there's one thing that I've learned over the past three-plus decades as an investor, it's that nothing lasts forever. Not bull markets. Not bear markets. Not high interest rates. Not low interest rates. Not periods of extreme volatility. Not periods of diminished volatility. Nothing -- I mean absolutely nothing -- lasts forever.
Every market goes through some kind of natural progression of prices moving up (as demand outstrips supply) and prices moving down (as supply overwhelms demand) and then, ultimately, returning to some semblance of normal pricing (where supply and demand counterbalance each other), that is, if there is any such thing as normal pricing these days in the markets. Richard Russell, the famous Dow Theorist, once noted that over a shorter time frame almost anything can happen in the financial markets, but over much longer, meaningful periods of time (referring to years), the surest rule in the stock market is the rule called "regression to the mean."
It seems that investors have forgotten just how important this statistical principle is in today's market environment. Human nature finds it much too easy to dismiss regression to the mean, but those that do will ultimately find that this rule of statistics cannot be ignored forever.
Human nature finds it hard to resist the temptation to extrapolate events of the immediate past into the indefinite future. We tend to discount those things and events that occurred over the intermediate (and longer) periods of the past, and focus our thinking on what is happening in the present days, weeks or months. In essence, we suffer from having short memories when it comes to the financial markets.
In the context of this idea that "nothing lasts forever," along with the propensity of investors to give little thought to the importance of "regression to the mean," we would
