
post-World War II period, the overall average annual rate of return on invested cap-
ital averaged roughly 12–14% per year. Experienced investors know that competi-
tor entry and growth in highly profitable industries causes above-normal profits to
regress toward the mean. Conversely, bankruptcy and exit allow the below-normal
profits of depressed industries to rise toward the mean. For example, drugs, health
care services, and medical supplies were among the most profitable U.S. industries
during the late 1980s as an aging population and government-sponsored health
programs caused the demand for health care to skyrocket. In the late-1990s, how-
ever, a ...