Ask a screen what value is and it returns a ratio. Ask the nineteenth century and you get something richer. Jules Regnault treated the stock market as a science and value as statistical, with duration at its core. Francis Galton showed reversion to be a robust behaviour of natural phenomena. John Rae introduced intertemporal choice — and with it, time inconsistency in human behaviour. Vilfredo Pareto found the power law that now appears ubiquitous in natural systems.
The paper’s claim assembles those four into one: duration, behaviour and value are inseparable. Statistical behaviour expresses itself durationally; because market systems carry uncertainty and order at once, inconsistencies — anomalies — are structural. Generations of researchers instead explained the anomalies with behavioural biases, polarising the field into an efficient-markets camp and a psychology camp, both arguing past the statistics.
The mechanics
| Thinker | Contribution | Pillar |
|---|---|---|
| Jules Regnault | Stock-market science; value as statistical; the importance of duration | Value · Duration |
| Francis Galton | Reversion as a robust behaviour of natural phenomena | Behavior |
| John Rae | Intertemporal choice; time inconsistency in human behaviour | Behavior · Duration |
| Vilfredo Pareto | The power law, ubiquitous across natural systems | Duration (scale) |
Read through the triangle, “cheap” is a photograph of a moving object. A valuation without a duration is incomplete; a duration without the behaviour that plays out across it is inert. The anomaly literature, in this framing, has been documenting the statistics of a natural system and filing them under human error.
Value has a clock
The triangle’s sharpest edge is time. Value’s payoff is duration-dependent: the behaviour that converts a cheap asset into a rewarded one needs room to complete its transformation. Hold the same asset too briefly and the value process is indistinguishable from noise — the label was right, the clock was wrong.
Define value as duration × behaviour and screens stop being static labels. A statistically cheap asset without a behavioural setup is not an opportunity; it is just cheap. The composite view asks both questions at once — is the price extreme, and is the transformation underway? Only the pair earns the premium.
What it means for portfolios
If value is a behaviour expressed over a duration, it can be measured as a state probability — the odds that a constituent’s statistical state persists or reverts over a horizon. That is exactly how the 3N™ engine treats it: value not as a ratio to screen on, but as a position in a cycle with measurable transition odds.
- Duration, behaviour and value are inseparable — a valuation without a horizon is incomplete by construction.
- Market anomalies read as statistics of a natural system, not catalogued psychological error.
- Value becomes investable as a state probability — a position in a cycle, with odds.
Pal, M. (2015). What is Value?. SSRN 2663131.
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