Barion wrote:This is my first post here, but I've been lurking for months, reading up on Generational Theory and the various articles, as well as perusing the forum. John, I want you to know that I think you've got some good stuff here, and it's really opened my eyes. I'm a history buff and so it's always interesting to gain some new perspective on historical forces at work. I just have a few, relatively minor, quibbles.
1. I don't subscribe to determinism/fatalism. While I believe that GD has a lot of merit, it's best used to understand what has happened before and a general guideline of what can happen in the future. But to accept that what has happened before must happen again is a logical fallacy. Just because something happens over and over again doesn't guarantee it will happen again. Will the sun rise tomorrow? Probably. One day it won't. Eventually GD will fail because human societies evolve. Until then, though, it's a good model to use, but one thing I take issue with is the notion that, because, for example, it's highly probable we're headed for a generational panic and crash, that there's no point trying to fight it. History has shown there are always anomalies that defy expectation, and to accept defeat without even trying, because it's pointless, is something I can't abide for myself. It's called defeatism. Sure, maybe all attempts to prevent the panic and crash will fail, but one day, somewhere, a solution may be found. I'm an optimistic realist. I may know doom is coming, and I'll try to prepare for it as best I can, but I'll still also hold out hope, and I'd rather go down swinging.
2. You mention the so-called Law of Mean Reversion. As a student of statistics and research methods (specifically a grad student in experimental psychology), I must admit that it drives me a little batty to see this fallacy over and over again. There is no such law. It's really something called Regression to the Mean. Regression doesn't require that something that exceeds the mean for a given time must inevitably spend an equivalent amount of time at the same distance on the other side of the mean. All it means is that when something exceeds the mean, it is statistically probable that later scores will revert back toward the mean. It may rebound completely back to the mean, or regress below the mean. Similarly, anything below the mean will also, subsequently, regress up toward the mean. It's a statistical model and also used to explain various experimental results, but by no means at all is this a law. This article sums it up nicely:
Here's an informative article on Reversion to the Mean that I found useful because it caused me to question my beliefs:
http://homepage.mac.com/j.norstad/finan ... sting.html
In the end I realized that I had a better understanding of Mean Reversion but that the conclusion of the article was flawed in that it assumed that we can't predict the future based on past data and that simply isn't true when it comes to a system such as the stock market that is based on human nature, which is quite predictable when measured in large numbers and over long periods of time.
I don't think that anyone will ever be able to accurately predict what the market will do on any given day, week or month based on mean reversion but it is possible to determine "pressures" that have built up and must be released at some point. Mean reversion, coupled with objectivity, a historic perspective and knowledge of the current economic conditions, can provide an excellent means for predicting the future of the stock market.