The reason is that, however good the companies with the fancy ratings may be, there is a limit to how much money investors can make from them once the prices have soared so far ahead of the reality. Read the academics' papers and the evidence seems pretty conclusive.
Needless to say, the proponents of growth stocks have been fighting back as well. They now point to some research by another American academic, Jeremy Siegel of Wharton, who found that everything depends on the time frame you look at. His study looked back at one of the most notorious bull-market phases in Wall Street's history, the early 1970s, when companies of all sizes traded at what, in retrospect, quickly appeared to be ludicrous multiples of earnings and asset value. This was the era of the Nifty Fifty, when even the mighty IBM was selling at 30 or 40 times its earnings.
Yet, calculated Siegel, if you had bought all 50 stocks at their peak in December 1972, you would still have outperformed the market as a whole in the subsequent 20 years. It is striking further proof, if you need it, that you can prove almost anything you want with statistics merely by picking the right start and end date. The plain man's conclusion in this is obvious. It is the common sense one that no method of stockpicking works infallibly all the time, and that trying to turn a theory into successful investment practice is much harder than it looks on paper. Usually it takes quite a long time to get it right - and even then you have to know when the world has changed and it is time to stop. The simplest and most infallible recipe for making money from the stock market remains having a lot to invest in the first place and living a long time. Meet those two criteria and it is a piece of cake, whatever the academics may say.
Following my recent pieces about the likely impact of a Labour victory on the financial markets, I see that even the Spectator has now prudently decided to commission an article examining how investors might make money under a Blair government. Their pundit, Mark Archer, a director of Baring Asset Management, shares my view that there is little left to play for in the stock market ahead of the next election, but reckons (like Stephen Lewis, whom I also quoted recently) that buying gilts at 9 per cent on the eve of the poll could well turn out to be a shrewd move.
The premise is that if Labour wins, Gordon Brown will want to make his first Budget as tough as possible, to get the hard decisions out of the way early and to establish Labour's anti-inflationary credibility with the bond markets. This was hardly high on past Labour governments' agendas, but in today's closely integrated economic world, is now a sine qua non for any wannabe successful modern political party.
Recent experience in Italy, where the bond market has rallied since the left-of-centre coalition's election win, shows that the traditional mantra about Labour victories - bad for gilts, not so bad for equities - may not hold quite so well this time round.
The last two Labour governments were catastrophic for holders of gilts, producing substantial real losses. But now, says Archer, bonds may well outperform equities after the 1997 election. That is certainly possible, but I wouldn't bank on it just yet. Life will certainly not be quite that simple, and if Labour wins, there is no guarantee that it will be either competent enough or determined enough to fulfil all its good intentions. Only the most fervent believe that the world has changed utterly and for good, and few doubt that there will have to be at least a couple of runs at sterling before Mr Blair has finished getting his furniture in place at Number 10.
But all this does underline the point that a Labour victory is already quite well priced into the markets. For those who prefer the wisdom of a Wall Street trader to the thoughts of a pukka merchant banker, there is also the additional evidence of the length of cigarette butts in London. They are getting shorter - an infallible leading indicator, said Victor Niederhoffer on his recent flying visit to the UK, of an impending Labour victory.
This is far more compelling evidence, but don't forget that it was only a year or so ago that everyone was saying that Bill Clinton had no hope of being re-elected. Now it is impossible to get decent odds against him doing so. Common sense and conventional wisdom may already be discounting the result of the next election, but the value bets are still to be found on the other side.Reuse content