A good stock may go up even when the market is going down, while a stinker can go down even when the market is booming. A great track record does not guarantee strong performance in the future. Stock prices are based on projections of future earnings. A strong track record bodes well, but even the best companies can slip. You can't tell how expensive a stock is by looking only at its price.
Investors compare stock prices to other factors to assess value.
To get a sense of whether a stock is over- or undervalued, investors compare its price to revenue, earnings, cash flow, and other fundamental criteria. A smart portfolio positioned for long-term growth includes strong stocks from different industries. As a general rule, it's best to hold stocks from several different industries. That way, if one area of the economy goes into the dumps, you have something to fall back on. It's smarter to buy and hold good stocks than to engage in rapid-fire trading.