Occasionally, markets can get overly optimistic about the future prospects for a business, bidding its stock price to unsustainable levels. When the price of a stock reaches a level that cannot be justified by even the best estimates of future business performance, it could be a good time to sell your shares.
There are countless examples throughout history of market prices getting ahead of the underlying business fundamentals, leading to underperforming stocks for years to come. In the late 1990s, many technology companies were pushed to levels that couldn’t be justified by their fundamentals. Companies such as Cisco and Intel still haven’t achieved their highs reached in early 2000, despite relatively good business performance.