He notes that he discusses this in chapter 9 his book, Clash of the Cultures.
The Gary Smith paper he references is "A Fallacy That Will Not Die," Gary Smith, The Journal of Investing Spring 2016, 25 (1) 7-15. A version of that paper appears to be online here.John C. Bogle wrote:"Does reversion to the mean refer to a period of outperformance followed by a period of underperformance, or a period of outperformance followed by a period of average performance?" Ponoma College Professor Gary Smith addressed this distinction head-on in his essay for the Journal of Investing titled, "A Fallacy That Will Not Die." Professor Smith invokes the gambler's fallacy-the false belief that, with respect to a random process, a series of unusual results is likely to be followed by a series of the opposite results.
So, when I talk about RTM, am I invoking the gambler's fallacy? No, I don't think so. Yes, I argue that we often observe periods of outperformance by active mutual funds relative to the S&P 500 followed by periods of underperformance. But, I would argue that this is not a random process like the flip of a coin. Rather, when mutual funds have periods of strong performance (and I make no claim about whether that is due to managerial skill or simply luck), the temptation to aggressively advertise that performance in order to gather more assets and earn higher advisory fees is often too great.
...I'm not invoking the gambler's fallacy. Rather, outperformance by active mutual funds sets off a cascade of events that create strong headwinds for active managers.