Grantham's Philosophy of Mean Reversion

Jeremy Grantham, co-founder of GMO and renowned value investor, describes mean reversion as "the heartbreaking principle that good times always revert back to more boring, more ordinary times." This isn't just an investment strategy — it's a fundamental force observed across decades of market history.

Grantham's approach rests on several key observations: profit margins are "probably the most mean-reverting series in finance," bubbles always break back to prior trends (he has identified 34 completed cases), and markets oscillate between phases of "mean aversion" (speculative euphoria) and mean reversion (fundamental reassertion).

The framework extends beyond investing into business strategy, organizational behavior, personal performance, and geopolitics — anywhere that abnormal returns or conditions invite corrective forces.