Five years later, analyst Michelle Clayman took another look at the stocks Peters branded excellent. She found most of the businesses had weakened. The high growth and profits had disappeared. In fact, most of the stocks were no longer excellent by Peters’s own rules. The reason? Mean reversion. Competition had pushed the high profits and growth rates back to the average. She said:[xlvii] In the world of finance, researchers have shown that returns on equity tend to revert to the mean. Economic theory suggests that markets that offer high returns will attract new entrants, who will gradually
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