Redefining What "Overvalued" Means When It Comes to Stocks

Value investors -- like the great Warren Buffett -- seek out temporarily underpriced assets. Theirs is among the more popular investment philosophies, because "buy low, sell high" makes simple, intuitive sense. But as Motley Fool co-founder David Gardner discussed in detail in an earlier Rule Breaker Investing podcast, quite a few of the best performers in the Rule Breaker portfolio were recommended at times when -- by traditional measures -- they looked overvalued. This, of course, is because Gardner is guided by the idea that winners tend to keep winning, so buy them high, and let them run higher.

Well, the listener whose question originally inspired that episode is back with a follow-up: Fine, says Darren Pryor, a stock that is by some metrics trading at nosebleed levels still may be a buy...but how, then, should we really define "overvalued" when it comes to stocks? There has to be some point where even a great company is just too pricey. In this segment from the mailbag podcast, Gardner brings back senior analyst Jim Mueller for a discussion of the varied ways that answer plays out, depending on the industry and other company-specific factors.

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Source Fool.com