Reversion to the Mean: Why Hot Funds Always Cool Off (Chapter 10)
Book: Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition by John C. Bogle ISBN: 978-0-470-59748-4
Bogle opens Part III of the book with what might be the most important concept for any investor to understand. It’s called reversion to the mean, or RTM if you want to sound smart at parties. And he subtitles this chapter “Sir Isaac Newton’s Revenge on Wall Street,” which honestly tells you everything you need to know about where this is going.