Ask TheStreet: Valuations

Now that we have that straight, let's move to the second part of your question, concerning growth rates.

Once the company announces its actual earnings, analysts can determine the company's earnings growth rate by comparing this year's quarterly results against last year's. The actual percentage change in earnings per share is the company's earnings growth rate.

Then, of course, things get slightly hairy again, because Wall Street likes to look forward to where a stock is going, not backward to where it has been.

In order to make forward estimates for the next quarter, the analysts need to guess how much the company will increase, or shrink, its earnings. To find the future earnings growth rate, the Wall Street community compares this year's quarterly results -- not against last year's actual results -- but against their own forward estimates.

And then the whole wacky process starts again.

Reader: What do you think of buying a good high-rated stock by averaging down? Charges are not a problem since I like to buy and hold. Thanks! --D.H.

GG: Averaging down, or buying additional shares of a stock you already own at a lower price, can be a great idea. You buy more shares when the price is lower, and it lessens the risk of investing a large amount in a single investment at the wrong time.

However, there is a potential pitfall associated with this strategy, and I believe that it's my duty to warn you about it before it's too late.

So listen up: Don't fall in love with a stock! And if you find yourself falling in love with a stock ... snap out of it! Just like in life, loving a stock too much can blind you to problems you may have otherwise seen.