Overbought Vs Overvalued Stocks: What’s The Difference?

Eventually, the law of large numbers catches up to overvalued stocks. Once it’s clear that companies cannot produce a high level of earnings for investors, they retreat from the stock until there is an appropriate multiple vs earnings. This retreat can be swift and painful.

If you’re investing for the long term, wait for stocks to recover from overvalued status. It can work to your advantage. If you’re trading stocks, you could conceivably pile into a hot, overbought trend. Just be ready when the music stops – that is where you might get hurt.

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