"FYI: Investors weren't challenged to make money in 2017. It was almost impossible to lose it."
Nevertheless, HSGFX persisted in keeping their losing streak alive. What is that like 8-9 years running now? Rockstar!

>> varies by how hot the hand is. Is this a way of advising (sometimes) to bail from extreme runups?

Point well taken. In the 90s - a few years from retirement - I found myself taking a crash course on investing. Bogle either drove me to drink or put me to sleep. Andrew Tobias, while less esteemed in the investment community, was much easier to digest (The Only Investment Guide You’ll Ever Need).
One thing that has always influenced me is Tobias’s suggestion small investors pick up all their marbles and walk away from the stock market if they ever find themselves in the midst of a gigantic bubble. Of course, the problem with this is in actually knowing whether a bubble exists. And he wasn’t clear on how to determine that. An additional problem now is that interest rates are much lower and the bond market likely more precarious than at the time Tobias wrote. So there isn’t a good alternative place to hide.
I did listen to Tobias, and also Bill Fleckenstein, in the late 90s and moved mostly to bonds prior to the 2000 equity rout. Fair to say the two of them saved me some money back than. Today I’m light on equity exposure - but not completely out as Tobias suggests. Subscribed recently to Fleck’s Daily Rap. Can’t say whether it’s a good investment or not, but does offer a starkly different perspective to most of the Bull crap coming from mainstream financial sources.

Yes, but what does it mean that the magnitude of perturbing noise is non-constant?
Looking at section 3 of the paper (where the constant magnitude σ is replaced by a diffusion function of the current value D(X(t)), it seems that the magnitude of the "randomness" of next year's return depends on this year's return, i.e. the magnitude of the noise depends on X(t) where t is the current year.
Still not sure what that means or why it would not be a constant σ, i.e. why would the size of the random portion of next year's return depend on the current return? At least it seems to preserve a sense of randomness.
FWIW, here's the full paper:
https://www.researchgate.net/publication/254496792_The_misconception_of_mean-reversion
@hank - I think you're referring to the Law of Large Numbers. One expects future returns to come out average. It doesn't matter if recent returns were above average. That won't make future returns come out below average. They're independent, so the future returns are expected to come out average.
When you add decades of average returns to recent above average returns, the result is still above average. But it gets very close to average because the future decades of average returns numerically swamp a few years of recent outperformance.
http://whatis.techtarget.com/definition/law-of-large-numbers
Edit: From your Wiki cite, a short paragraph stating what I've been trying to explain about mean regression (next random result is closer to mean, nothing more), and law of large numbers (lots of average results swamp a few good returns):
https://en.wikipedia.org/wiki/Regression_toward_the_mean#Other_statistical_phenomena

I guess we all agree on meaning of “reversion”. Where I think there might be different assumptions is in the application / use of “mean“ and also whether a reversion needs necessarily to somehow arrive at some actual numerically significant mean, or whether the reversion simply needs to move in the direction of the mean.
The author’s analysis is accurate if he’s only deliberating as to whether there will be (next year) movement in the direction of some type of more normal valuation. To me, that’s the premise @msf is working from. And to that extent, it’s a logical deliberation. But, I get the impression in reading Bogle that he views “mean” as a more concrete permenant valuation metric, and that this mean is normally arrived at gradually over longer periods (years and decades).
I’d be more inclined to agree with a lot of the analysis here if the term “reversion towards the mean” were being employed.

MJG's graph (from here, among other places) supports the thesis that mean reversion (in the literal mathematical sense) does hold in the investing world.
The first sentence is almost right: "A reversion to the mean has to happen after a particularly outlander." Mean reversion says simply that for a sequence of random numbers, the further away from the mean the current value is the more likely the next value is to be closer to the mean. More likely, but it does not "have to happen."
This is one of those self evident statements when you think about it. Suppose we've got something with a normal probability distribution (bell curve) centered at zero (mean). The probability of the next value being above zero is 50%, and below zero is 50%.
The probability of the next value being below 1 is higher than 50% (since 50% will fall below zero, let alone 1). The probability of the next value being below 10 is even higher; the probability of the next value being below 20 is higher still. The further away from the mean, the higher the probability that the next value will be closer. Duh!
(Technically, I'm illustrating something slightly different from mean reversion, but it's close enough to convey the concept.)
In order for this "rule" to be valid, we have to be observing something random. That's what gives us the bell curve. MJG's graph purports to show that next year's returns are indeed random (zero correlation with the previous five years' performance). So rather than showing lack of mean reversion, the graph suggests the opposite - that the yearly returns are random - a necessary condition for mean reversion.
The reason why I said "purport" is that the graph is not showing the correlation between the current year's return and the next year's. (Rather it shows the lack of correlation between the past five years' cumulative performance and the next year's.) The original article looks at next year's performance in comparison with the current year's performance (not prior five year's total).
Looking at performance following 20%+ years, the data evinces mean reversion. The subsequent years averaged a return that was about the same as the market long term average of 11.4% between 1928 and 2015. That suggests that next year performance of these years was random. Further, in these years immediately following 20% gains, the market went up roughly the same percentage of the time (69%) as the market did over all years (72%). So it looks like the randomness requirement for mean reversion is not violated.
More important, for most of these outlier years (20%+ returns), the next year's returns were closer to the mean. The exceptions were:
1936 (1937 returned less, but further away from the mean of 12%),
1942 (higher in 1943),
1961 (1962 returned less, but further away from the mean),
1976 (1977 less but further from mean),
1982 (1983 slightly higher),
1996 (1997 higher),
1999 (2000 less but further from mean),
That means that 25 of 32 years following 20%+ returns were closer to the mean than the years they followed. That is, there was mean reversion. It happens most of the time, but not always. And 20% isn't even that much of an outlier - less than one standard deviation (19.7%) from the mean (11.4%).

Old Skeet's month and year ending barometer report.
Old Skeet's market barometer follows the S&P 500 Index and it's major sectors using etf's as proxies and pulls data from certain feeds that produce readings that are compiled and scored into a barometer reading.
At the beginning of the month the barometer opened with a reading of 140 (overvalued) and closed the month with a reading of 138 (overbought). At the beginning of 2017 the barometer had a reading of 147 (fair value). The high reading on the barometer took place during the last two weeks of August and first two weeks of September with readings around the 152/153 range (undervalue). The low reading on the barometer took place during the third week of October with a reading of 132 (overbought). Their were no oversold readings recorded during the year for the Index. Generally, a higher barometer reading indicates more investment value in the Index over a lower reading. In addition, the barometer drives an equity weighting matrix that I use to assist me in setting my equity allocation within certain ranges. Currently, I am overweight equities at this time by about 5% due to a seasonal investment strategy over what the matrix is calling for.
The earnings feed will be advanced with the beginning of the next report. Currently, I am finding only one sector that scores undervalued at this time and that is utilities (XLU). All the other sectors are scored at fair value and above.
My 2018 S&P 500 Compass is equally weighted and is comprised of the following etf's. They are XLB, XLE, XLF, XLI, XLK, XLP, XLRE, XLU, XLV, XLY & EQL (reconfigured annually).
My 2018 Global Balanced Compass is weighted stock side at 60% with holdings being AXJL (5%), EEM (5%), EWJ (5%), GSP (5%), IEV (10%) & VTI (30%) and weighted bond side at 40% with holdings being AGG (20%), CWB (5%) & SHV (15%) (reconfigured annually). In addition, it holds VT as it's bogey and representative of global stocks as a whole.
In the next post I'll write about my use of my lead dog investment strategy. Should there not be a Buy Sell Ponder thread opened to start the new year then I'll continue postings with the return of the Markets & More thread on Friday evening January 5th.
Currently, Old_Skeet remains in a cash build mode within my mutual fund portfolio; but, has done some buying (with excess cash) around the edges in the month of December adding to my double tax free muni bond fund (income sleeve), added to positions in my small mid cap sleeve (to build it out) and opened a "floor" position in a commodity strategy fund (spiff sleeve). In addition, since I take most of my mutual fund distributions in cash (and with their above average payout this year) I am overweight cash at this time by a couple of percent. Some of this excess cash will be used to meet my 2018 RMD requirement within mine and my wife's self directed IRA accounts. After that, I may do some more buying around the edges and looking to add a position in KCM Macro Trends fund.
Wishing all the very best in the coming year ... and, most of all "Good Investing."
Thanks for stopping by and reading.
Old_Skeet
Please forgive my typos along with some misspelling made this year as I suffer form dyslexia which has become more pronounced in my senior years. This is one of the reasons I passed the Buy, Sell & Ponder thread on to another; but, I have still made post to the thread in hopes of helping to keep it going. It has, thus far, remained a highly viewed thread although the number of comments, by others, seem to be in decline.

FYI: For Burl East of Allegris AACA, the best real estate sectors are the ones where tenants can’t move: data centers, lab space, even casinos
More importantly, “I’ve been through three full real estate cycles, working as a buy-side analyst, a sell-side analyst, an investment banker, and sitting on seven boards,” says the manager of the $293 million Altegris/AACA Opportunistic Real Estate fund (ticker: RAAAX). “I’ve seen this industry from every angle.”
That perspective—and an unconventional approach to the space—has helped deliver his fund, launched in 2014, to the top 1% of its real estate category over the past three years, during which time it returned an average of 10.9% a year.
Regards,
Ted
http://www.cetusnews.com/business/On-the-Lookout-for-Powerful-Properties.SJ_j7HgqjEmG.html
Altergis Funds Website:
https://www.altegris.com/en/Funds/Mutual-Funds/RAAAX Landing Page.aspx
M* Snapshot RAAAX:
http://www.morningstar.com/funds/xnas/raaax/quote.html
LIpper Snapshot RAAAX:
https://www.marketwatch.com/investing/fund/raaax
RAAAX Is Unranked In The (RE) Fund Category By U.S. News & World Report:
https://money.usnews.com/funds/mutual-funds/real-estate/altegris-aaca-opportunistic-real-estt-fd/raaax

@hank- If you succeed with Einstein's Theory of Relativity you'll be in good shape for the next challenge: figuring out Ted's Theory of Posting Relativity. I've been working on that one for years now with no discernible progress. :)
Have a great New Year!
Best Regards- OJ

FYI: With just a few hours left in the trading day, the S&P 500 is on track to deliver a hefty gain of over 20% to investors for 2017 and the ninth straight year of gains on a total return basis. In the S&P 500’s history, there has only been one other period where the S&P 500 was in the black for nine straight years, and that was from 1991 to 1999. A big difference between that streak and now, though, is the magnitude of the gains. During the 1990s streak, the S&P 500’s total return was 450% compared to a relatively meager gain of 261% in the current period. If the S&P 500 does make further gains next year, it will be the first ten-year winning streak for the index ever. With such a big gain this year, though, can investors really expect to see gains in the year ahead?
Regards,
Ted
https://www.bespokepremium.com/think-big-blog/does-a-reversion-to-the-mean-follow-big-years/

@DS,
k, point taken, I guess.
I did not read Rice Delman so episodically and implicatively and glossily as you, but maybe that's because for years I have been hearing him whinge on about the long term.
>> From 2000-2010, the market's net return was zero
We have to be careful about, hmm, what's a good word for larger-scale cherrypicking?
For some reason the decade you cite was a decisive argument for active management. SP500 sucked majorly, yes, but when you look at some big favorites sometimes cited here at MFO --- FCNTX, FLPSX, TWEIX, FPACX, PRWCX, VWELX, DODGX, and WEMMX, say --- the total from a $10k investment ranges from just under $14k to more than twice that (the two Fido funds, coincidentally). Those results only improve if you include 2010 rather than ending 1 Jan 2010.
Naturally you had to have held them for the long term. (Many bailed out of FCNTX sometime in 01 or 02, and even more did likewise with all of them save First Pacific in 08-09. )
So sleep through volatility if you have faith. Easy to prescribe. And right, no glossing, no ill prep.

Hi David.
Hmmm ... my concern is the implication that your total return in the current market cycle is 231%. That comes about because the bull market is disconnected from the bear portion of the cycle. From 2000-2010, the market's net return was zero which is not evident from the chart.
You, and he, are right: markets go up in 3-4 times as many years as they go down. But if you gloss over the ugly fact that the recovery periods for many funds was five or six years (DODGX took 63 months to return to zero following its max drawdown in the current cycle), you're ill-preparing them to be the long-term investors you might seek.
David

“This chart clearly shows that when stock prices are rising, they rise a lot and for a long time. When prices fall, they fall a little and for a short period.” - Does that guy really believe this? If life were only so simple ...
I’ll grant that stocks rise more years than they fall (over long periods). But downdrafts can be long and painful. Look how long it took the NASDAQ to get back to 5,000. A lot of folks bought in at the highs in ‘98-‘99. And as David explained - A 50% down year followed by a 50% up year leaves you with 75%.
Totally unrelated I guess ... but look at how many years interest rates have been falling. Unless you expect them to go negative in this country, we’ve probably already seen the best days (for rates).

This is the year to beef up one's donor advised fund. Because the standard deduction will be so much higher next year, far fewer people will be able to itemize. One is more likely to be able to deduct those charitable contributions this year. The DAF provides a way to retain those deductions, while caching the cash for contributions you'd be making anyway in subsequent years.
To Lewis' concern about DAFs slowing down the transfer of money to charities. That is a real problem. We prefer making our routine donations directly, and use our DAF primarily to handle appreciated securities and to serve as a reservoir for non-routine larger donations, generally disaster relief. However, the tax changes seem to make a 2017 DAF contribution the better way to go, at least until the laws are changed again.

That is a significant departure.

I agree and I've owned it for a number of years. It's leading M*'s Global Real Estate category in pretty much every time period. Anyone have any recommendations for an alternative? Based on what I was able to screen at M* it doesn't really seem like there are any funds that do what they've done.

Howdy folks,
First of all, most of us at one time perhaps thought of opening up a bitcoin wallet and stashing a couple of coins there for giggles. Alas and alack, I didn't. Rats. [rono looks around for a show of hands]
Is it worth the tulip-maniacal craze? Probably not, but who really knows. On the news last week, there was a segment on how in South Korea bitcoin is very mainstream. Keep in mind that they're been about a decade ahead of us when it comes to mainstreaming new technology. If I recall, the whole country has had broadband for going on ten years. What we will want to watch is the winter games and how our athletes and visitors use it.
I think the whole world is looking for a way to test the waters without actually opening up a wallet.
Oh, and for those that have studied bitcoin and mining them, think about how much Mordor has mined.
and so it goes,
peace,
rono

It looks like VASFX has been trading for a few years now, and it hasn't performed well. But I am likely missing something here.

The successful momentum investors I think of over the years here at MFO are Junkster, rono and Flack. Probably others too. I believe they have been very successful at it. Me , not so much. It's hard to duplicate someone else's strategy.

FYI: Wall Street doesn’t expect technology stocks to repeat 2017’s banner year that has seen the sector return almost twice as much as the S&P 500 index. After four consecutive years of outperformance, tech companies face mounting concerns about the potential for increased government regulation and continued rotation by investors into higher-taxed industries as a result of U.S. tax reform. Most analysts see the bull market continuing, but at a less ferocious pace. Here’s a look at their predictions.
Regards,
Ted
https://www.bloomberg.com/news/articles/2017-12-20/party-s-over-for-tech-stocks-as-outlook-grows-cautious-for-2018

Hi @Mitchelg
You note a good point about flexibility with some investment houses. Several years ago I had a "finger problem" combined with a "too busy of a day syndrome" with a Fidelity purchase. I bought a Fido fund I had not intended to purchase. The fund happened to be one with the 60 day holding period or a 1% sell fee would be subtracted. I didn't realize the purchase problem until the next day. A phone call explaining the error removed the errant purchase and no fees were attached. Customer service/relationship has always been a most positive experience for us with Fidelity.
Never hurts to ask, eh?
Regards,
Catch