With the markets surging since the end of the recession and showing no signs of stopping, it’s easy to forget about basic investing fundamentals. After all, a rising tide lifts all boats. But that’s just the thing; not all stocks are the same. And some are downright dangerous.
However, as market euphoria takes over, it seems that investors are forgetting simple rules about stock valuation.
But we shouldn’t. With the markets being so high these days, the time to bet on quality stocks is now. And it’s a lesson that investors should take to heart. History shows that this is the case.
Big Gains and High Valuations
So far this year, stocks have continued their climbs. The S&P 500 is now more than 250% higher than it was during the depths of the recession, while the Dow Jones and NASDAQ Composite continue to hit record highs. But while the early gains for the major indexes were characterized by a return to the markets overall, lately those gains have come from a hefty dose of growth-oriented stocks. For instance, as of mid-October of this year, the MSCI USA Momentum Index has gained roughly 30% year to date.