For the past few years, analysts have noted the underperformance of “value” stocks when compared to “growth” stocks. This extended underperformance has led to a large number of people, such as famous value investor Jeremy Grantham, to suggest that the traditional rules of value investing don’t work anymore.

Value investing does work, it’s just that the traditional value metrics are flawed. Most notably, the P/E ratio has serious issues that make it unreliable. The three main flaws, which we’ve discussed before are:

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