How valuations can help investors avoid costly mistakes


As valuations increase, gains become less likely while the likelihood of losses rises. Similarly, as valuations decline, prospective gains increasingly eclipse potential losses. At extremes, markets are priced to perfection, there is almost no amount of good news that can prevent subpar returns, and when they are priced for Armageddon, strong returns are likely to ensue in all but the most cataclysmic circumstances.



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