Overvalued stocks are those stocks that cost in stock market more than their target price is. Target price of the stock is calculated market value of a stock using stock valuation methods. The most popular methods for stock valuation are relative valuation and DCF valuation.
Overvalued stocks aren’t really very promising investments and should underperform the market if target price was calculated under realistic assumptions. Normally, undervalued stocks should be better investments.
Usually nobody is looking for overvalued investments on purpose. In reality every investor is looking for undervalued investments but if someone has overvalued shares in the portfolio, and he is sure that those are overvalued then one should sell such stocks and replace those by cheap stocks.
Investment psychology gains momentum in contemporary business world
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