We expect to find the wider the discount to value, the better the return. The other findings are unexpected. But both fit our theory of mean reversion. Mean reversion pushes up the beaten-down prices of undervalued stocks. It pushes up beaten-down businesses, too. The key to maximizing returns is to maximize our chance at mean reversion. That means maximizing the margin of safety. We want the most undervalued stocks. And we want to make sure they survive to mean revert.
