real estate. From a financial standpoint, the decision to buy a house should be based on the cash flow—the rental savings minus the mortgage payments, property taxes, and other expenses associated with home ownership—not guesses about future home prices. All real estate is local, so the answer to the question of whether a house is a good financial investment varies from place to place. A widely cited Brookings paper, co-authored with his wife Margaret H. Smith, applied this reasoning to ten U. S. metropolitan areas in 2005 and concluded that there was not a nationwide real estate bubble. In cities like Indianapolis and Dallas, residential real estate looked like a terrific long-run investment in that the rent savings were much larger than the expenses. A follow-up study by Smith found that, not only in these 10 metropolitan areas, but in cities throughout California, areas with relatively low price/rent ratios were the most resistant to the drop in home prices between 2005 and 2010. Regression to the Mean When intellectual ability, athletic prowess, and other traits are measured imperfectly, those who seem to be the most able are more likely to have been overrated than underrated. Their subsequent performance consequently tends to regress by being closer to the mean than previously. This little-understood phenomenon of regression reaches into nearly every aspect of life, from academic achievements to athletic performance to corporate profits to the campaign trail. It happens with students, athletes, CEOs, politicians, and soul mates. The baseball star having an MVP season one year is likely to do worse the next. The hot company will eventually cool down; popular presidents will in time see a plunge in the polls. And vice versa. Smith has investigated regression in education, sports, forecasting, business, and investing. Stock Market Anomalies The efficient-market hypothesis holds that stock prices take into account all relevant information, so that no investor can beat the market by taking advantage of others’ ignorance. Evidence that contradicts the efficient market hypothesis has become known as anomalies. In addition to stock market anomalies created by an insufficient appreciation of regression to the mean, Smith has found that a portfolio of the stocks identified each year by Fortune magazine as America's most admired companies outperformed the market, contradicting the efficient market hypothesis. He also found that a portfolio of stocks with clever, eye-catching ticker symbols—for example, LUV (Southwest Airlines), MOO (United Stockyards), and