Regression Fallacies, from Victor Niederhoffer
It's common to say things like today's decline was spurred by a growing concern that a rally of as much as 62% since March 9 had outpaced the prospects. This is like the other canard that the market is not buoyant since 60% of the stocks are down more than 20% from their 12 month high. Or 40% of companies reported earnings that were more than 30% below their previous peak.
Such statements are always true because the extreme is always higher or equal to the current level. With a random ensemble of stocks there will always be a good number that are not at the extreme by a substantial margin. Has to be, because of random numbers and retrospection.
Does such foolishness emerge in other areas, and are there any potentials for profits in such naive utterances?