Photo credit: ashokboghani

The market in 1999-2000 got narrow. Few groups and few stocks were leading the rise. Performance-conscious investors, amateur and professional, servants of the “Church of What's Working Now,” sold their holdings in the slower growing companies to buy the shares of faster-growing companies, with little attention to valuation differences.

So shares migrate. Those that fall in the midst of a rally, despite decent economics, get bought by long-term investors. The hot stocks get bought by shorter-term investors, who follow the momentum. This continues until the gravitational effects of relative valuations gets too great — the cash flows of the hot stocks do not justify the valuations.