In the dot come bubble tech bull market, the overvaluation narrative had a hard time pushing back even when index P/Es were in the 30s and 40s. People talked about overvaluation, they worried about it. But then they kept watching the price go up–so what do you do? You don’t tell the market that it’s wrong, you trust your environment, you go with the flow. In the end, it took a tight Fed, a recession with falling earnings, a slew of corporate bankruptcies and scandals, unfamiliar accounting changes that led to further earnings plunges, a terrorist attack, a war in the Middle East, and so on, to finally get the market moving reliably in the downward direction, so that the valuation excess could be corrected.
