3 ideas
The largest stock returns come when two engines fire at once: rising earnings and a rising multiple the market pays for those earnings. A mid-cap bought at a low P/E before its growth is recognised can multiply several times over, because its price rises with profits and the market also re-rates the P/E upward as growth becomes visible. Buying growth early, rather than buying statistical cheapness, is what captures both engines.
The sell signal is therefore a slowdown in the growth rate or a break in the growth story. A high valuation on its own is not the signal, since a stock that keeps growing fast can keep deserving a high multiple.
Returns are driven by a handful of big winners, so diversifying across many stocks dilutes the impact of the few that compound. The investor should hold a small number of deeply understood growth companies and put meaningful capital into them. Money should be added to positions that are proving themselves through reported growth, and not spread thinly or averaged down into laggards.