Self-Correcting Mechanism

I like this picture very much. It shows the self-correcting mechanism between the values of real estate versus stocks. Over the last 50+ years, the relative weights of real estate value and the stocks and mutual funds value in the US households come together four times. It is approximate 15 years per cycle.

There are short-term views. Many investors are trying to predict the next best moves regarding stock selections or investment choices. This process is trying to harvest the short-term volatilities of various asset classes. It is very good to expect to reach the goal. However, there are only a very small percentage of investors can actually achieve this goal.

There are long-term views. Asset allocation methodology is one of the best examples to take the long-term views of the capital markets. In a way, anyone who is willing to suffer the mediocre returns of investment can achieve this goal. Ironically, very few average investors are willing to admit their average market intelligence compared with the entire investment communities.

Actually, the long-term versus short-term views themselves are a dialectic pair of the entire investment universe. Without either side of views, the other view can not even exist for a minute.

In others words, the dialectic pairs can be presented in other forms. There are traders and investors. There are mutual funds and hedge funds. There are stocks and bonds. There are real assets and securitized assets. There are technical analysis and fundamental analysis. There are many such pairs existed in the investment universe.

In such a complicated universe of investment, how can we achieve the expected return we are aiming for?

The state can be stated is not the normal state.