It is an axiom that stocks are never fairly priced. The theory of reflexivity states that when a big downtrend or uptrend starts, it is guaranteed to overshoot the fair-price mark. Most of the time, therefore, valuations are higher than justified by fundamentals or lower than justified.
It is relatively easy for a long-term investor to handle a situation when stocks are undervalued: Keep investing in these stocks and rely on prices improving at some stage. The longer a bear market lasts, the more the eventual returns are. It is very hard to handle a situation where stocks are overvalued. The
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