(Bloomberg Opinion) — Why has value underperformed growth for so long in the stock market? Joel Greenblatt of Gotham Asset Management LLC, who is this week’s guest on Masters in Business, explains why traditional measures of value such as price-to-book value, price-to-earnings and debt-to-equity ratios are failing to identify companies with strong potential future cash flows and good growth prospects. He recommends investors instead look to “relative value” as a way to identify companies that have better prospects than suggested by traditional value metrics.
Greenblatt has shared this idea in his books, most notably “You Can Be A Stock Market Genius.” His mutual fund — Gotham Enhanced S&P 500 Index Fund — uses the relative value approach. It has a 4-star ranking from Morningstar and has outperformed 90% of its peers since inception. Greenblatt has been an adjunct professor at Columbia Business School since 1996, where he teaches classes on value and special situation investing. His Gotham Capital hedge fund generated investment returns of 50% per year for a decade in the 1980s and 1990s.
Greenblatt’s latest book is “Common Sense: The Investor’s Guide to Equality, Opportunity, and Growth.” He explains why immigrants — especially skilled immigrants — are an economic asset of the U.S. The nation makes a net $500,000 to $1 million for each skilled immigrant it takes in, and creates two jobs for each new immigrant. Immigrants have founded 51% of start-ups, and have founded 216 of the Fortune 500 companies.
A list of Greenblatt’s favorite books are here; A transcript of our conversation is available here. You can hear our previous conversation in 2018 here.
You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Overcast, Google, Bloomberg, Stitcher and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.
Be sure to check out our Masters in Business next week with Lisa Cook, who served as a senior economist in the Obama administration’s Council of Economic Advisers, and is currently a Professor of Economics and International Relations at Michigan State University. Her groundbreaking research on patents and economic history has huge implications for the wealth of countries.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Barry Ritholtz is a Bloomberg Opinion columnist. He is chairman and chief investment officer of Ritholtz Wealth Management, and was previously chief market strategist at Maxim Group. He is the author of “Bailout Nation.”
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