Richard Bernstein, founder of New York-based asset management firm RB Advisors, developed what I consider the most coherent framework for value versus growth investing when he was the chief U.S. quantitative strategist at Merrill Lynch. He reiterated this thesis in aas part of a discussion on why technology stocks are currently leading the S&P 500.
In Mr. Bernstein’s framework, growth strategies outperform when corporate profit growth is scarce. These environments see successful investors willing to pay high valuation levels for the relatively few companies able to grow profits. Value investors underperform because cheaper stocks, unable to expand earnings, remain cheap.
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