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Comment by Terr_ | Hacker News Reader

> CEOs whose faces during a media interview showed disgust [...] were associated with a 9.3% boost in overall profits in the following quarter.

I'm surprised I haven't seen anyone say "Regression to the mean" yet.

Suppose the CEO gets obviously-scowly whenever their last quarter was abnormally bad... Well, the next quarter will naturally tend to be better, purely because it's a return to a "normal" state of affairs.

In other words, perhaps they've simply found a way to detect the PAST performance by looking at the CEO's face, which is... rather less-useful.

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I have never heard of regression towards the mean in profits. It certainly doesn't exist for stock prices. You would actually tend to observe trends - the opposite phenomenon. For example, Google would have a 20% increase in profits on one quarter and another similar increase the following quarter but not a sudden loss caused by a regression to the mean.

In this case, "regression to the mean" is probably the wrong phrase.

Generally, though, when a CEO is looking stern and fearful and declaring writedowns and layoffs and erasing the 'goodwill' off of their books one quarter along with huge losses and financial penalties, etc then the next quarter usually isn't quite as big of a shitshow...

So the point here would be to buy a stock that has been overly punished and become unfashionable, while the overall business is still sound and will eventually rebound and the stock price should perk up.

If true, though, reading the negative emotions of the CEO would be correlated with past performance and it wouldn't be useful to determine if the company really was sound or if the company was actually heading to zero.

Regression to the mean historical growth of X%, then.

Are you thinking of "the mean" as a single fixed scalar value?

Simple question then: Does anyone run a fund based on regression to the mean for quarterly performance?

'Regression to the mean' would be buying a stock that is currently cheap because of mistakes last quarter yet still has good fundamentals. So we'd expect it to recover based on those fundamentals. It's what a lot of people do already.

Dogs of the Dow would be based on this general premise would it not?

Yes and no - AIUI they're "dogs" based on having limited future growth potential rather than having had a bad quarter.

Exactly what I thought.

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