Most domestic categories of stocks have again been gradually pushing toward what I consider overvalued levels. While alluring, their excellent prior performance can lead to one of the biggest enigmas faced by investors.
The magnitude of investment performance for a particular fund or fund category, including for bonds, tends to persist over relatively extended periods. Thus, in a sense, the best short to intermediate-term predictor of future performance of a fund does turn out to be past performance. As a result, investors are reluctant to change course when things are going well. Of course, when a fund or fund category has been doing relatively poorly, taking action seems far easier.
So here is the dilemma: When a fund or fund category has been doing well for a long time, perhaps for years, do you stick with it even if it seems to have become overvalued? The reality is that most…
