(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