The term “value investing,” is often used to described strategies “derived from simple ratios of accounting numbers to stock prices,” according to a recent article by the CFA Institute.

“The ugly truth,” the article says, “is that many value funds apply dime-a-dozen strategies built on formulaic accounting ratios. Investors are better off looking for managers who deploy more comprehensive analysis to determine the intrinsic value of the underlying securities.”

The article cites the book Security Analysis by Benjamin Graham and David Dodd which “advocated buying stocks trading at a significant discount to intrinsic value but specifically avoided a formula-based approach.” According to the article, data collected by the authors suggested that “using simple ratios of accounting fundamentals to prices doesn’t identify underpriced securities so much as those with temporarily inflated accounting numbers.” [The article cites the book-to-market, trailing earnings-to-price, and forward earnings-to-price ratios as examples.]

According to the article, these findings imply that an opportunity exists for skilled managers in the value investing realm and “serves as a reminder of the potential dangers of backtested performance.”