JavaBeans: It is the Modern Portfolio Theory that suggests that market prices are in equilibrium at any given moment not fundamental investment theory. Markets are efficient for most of the time but they tend to be inefficient at times, that's why Buffett has been able to get the outsized returns (I heard this from Buffet himself).

Regarding which equity valuation method to use, personally I think it depends on the person's risk tolerance. If you are risk-averse (which most of the people are including myself), you can wait till the time when the market becomes inefficient and buy hoping that eventually market will be efficient and prices will return to their equilibrium, or, you can trade the momentum with a stop. The first type of people that buy when they perceive the market to be inefficient do not have stops, they'll hold on to those stocks through thick and thin. I like to buy/sell momentum with stops. For most of the people that are starting I think the first strategy is good but if you know what you are doing the second strategy is better.

You asked a very good question, one of the best question that has been asked here!!!