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To: Frodo Baxter who wrote (4700)	10/13/1998 12:08:00 AM
From: Bill Martin	Respond to of 9256

Re: Everything always reverts to the mean (this is definitional). Actually I believe that reversion to the mean only applies to independent statistical events. Punctuated equilibrium is plainly not an example of independent trials since something fundamental (namely the genetic code) has changed in between. If your DNA is altered by a passing cosmic ray to grow feathers rather than hair on your head, none of your descendents will revert to hair via your DNA just because all prior generations had hair. As an example of punctuated equilibrium applied to the markets, think what happens when you change the tax code to 95% capital gains taxation. You'll see a fundamental change in stock multiples that will never revert to the prior mean while the new tax law exists. The trials before and after the tax change are not "independent". Bill