Post #2833 by rayvt on the Mechanical Investing board

Investment Strategies / Mechanical Investing ❤

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you can at least try to avoid holding them when their valuation levels are too high to make sense. e.g., everybody loves Costco as a business and as a stock, and it deserves a premium, but I wouldn't hold it at these valuation levels (58 times trailing earnings) because if it merely returned to its own historically normal but lofty valuation levels (say, 26-31 times earnings) it would be a pretty big drop.

Problem is, you can run into a "It's not me that is wrong, it is the market that is wrong." situation.

You can wind up selling BRK-B when it becomes overvalued at 325 and watch it tromp to 490.

I am reminded of an old quote that goes something like "Aren't you glad you are a momentum investor? You don't need to sweat about valuations and financials and the like, all you need to do is look at prices."

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