what is mean reversion?

Answer 1

"Mean reversion" is a statistical term. It means that for any given process, that unusually high or low levels will eventually go back toward its historical "mean" average.

For example, if you flip a coin 10 times and it comes up 2 times heads and 8 times tails - will go back toward being 50% heads and 50% tails as you do more and more coin flips.

In business terms, it is usually used for the stock market. For example, if a stock is valued exceptionally high, it will revert back toward its peers over the course of time. Over the short term, it may stay high, but over any infinite lifetime, it will not stay at exceptionally high prices. For example, the "dot com" era had unusually high valuations for technology stocks. They stayed high (and continued to increase) over seven years. But eventually reverted back toward more "normal" levels.