Jeremy Grantham believes we are in the fourth superbubble of the last hundred years. He has many valid points and raises the specter of an utterly dismal 2022. Already we are down the first 3 weeks of January, and history shows that with almost certainty a down January results in a down year (.732 batting average.) With a handful of exceptions, notably massive Federal Reserve bailouts, this has always been the case. Grantham, however, takes it one step further than rule-of-thumb Wall Street adages and formulates a thesis on the simple premise of mean reversion.
Mean reversion describes just what it implies; that there will be a return to the average growth rate over time. Yes the growth rate itself might change over time, but sustainment of extremely high deviations from this average are difficult, if not impossible, to maintain over longer and longer periods of time. Typically they come in "bursts" that spike up (or down) in sharp, unstained points. Consider one of the best baseball batters in history, Ted Williams.
With a lifetime batting average of .344, Williams is arguably the best batter of all-time. He finished his career as the last batter with OVER a .400 average...that was almost a 20% deviation from his mean. Over long-enough careers with enough data players can be predictable, hence the rise of the current "Moneyball" climate of assembling a team on pure statistics. The stock market has even more statistics and a greater database to glean from for investors than baseball.
Consider the chart below, which identified 3 of the last 4 superbubbles and makes a prediction for the current situation: