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In "How Overvalued Are The Most Expensive Stocks?" I spent a few minutes editorializing around a sli
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Statistics is a wonderful scientific niche. It is bounded by lovely laws which are our only way to get legitimate hints about the future. First a definition. An industry is a group of companies all of which produce products or services that are nearly perfect substitutes for one another. A laptop computer is not a substitute for a telephone so they are in different industries. Here are the facts, it is impossible for any firm to grow faster than all of its competitors indefinitely. It is impossible for any industry to grow faster than other industries indefinitely. It is impossible for any industry to grow faster than the economy indefinitely. These impossibilities are bound by statistical truths which most investors, and even money managers choose to ignore. Nevertheless, these facts are controlled by the laws of statistical economics and all good things we see at this moment will soon be over. One other small thing. There is no such thing as a sustainable value for “alpha.”