The important lesson is that—especially in an interconnected, informed world—everything that produces unusual profitability will attract incremental capital until it becomes overcrowded and fully institutionalized, at which point its prospective risk-adjusted return will move toward the mean (or worse). And, correspondingly, things that perform poorly for a while eventually will become so cheap—due to their relative depreciation and the lack of investor interest—that they’ll be primed to outperform. Cycles like these hold the key to success in investing, not trees that everyone is assuming
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