Worst investment ideas: Overvalued stocks?
Some stocks have soared so much this year that they are overvalued, Litchfield says. "What's done the best this year is the stuff that is most expensive -- stocks like electric vehicle manufacturer Tesla Motors and Netflix," he says. "Those are story stocks with horrible valuations."
As of Oct. 25, Tesla shares have quintupled this year and Netflix shares have more than tripled. At that point, Netflix had a price-earnings ratio of 409, based on trailing-12-month earnings, according to Yahoo. Tesla has almost always reported losses.
Litchfield expects the Fed to increase its bond buying next year. And in that environment, "One wonders how high those stocks can go," he says. "A lot, as we saw in the dot-com era. But that said, this would be a group I'd avoid."
You could buy a very small amount of the speculative stocks, Litchfield says. "When momentum rules, these stocks do well. But it's important not to make the big mistake, which could happen if you go into too many."