A post in Institutional Investor highlights a “value trap” that arises when stocks appear cheap but are within a sector that “experience[s] high levels of asset growth [then] collapse.” Examples include U.S. homebuilders just prior to the financial crisis and, more recently, the mining and energy sector. Edward Chancellor (former GMO pro) of Marathon Asset Management suggests that “businesses in sectors that have experienced rising levels of [capital expenditures or capex] and supply . . . should be avoided even when they look cheap.” On the other hand, “growth stocks in businesses with strong competitive positions and disciplined capex are attractive provided they can maintain high returns on capital for longer than the market expects.” This approach, championed by Marathon, appears supported by data, according to the post. For example, research suggests that “firms with the lowest asset growth . . . have returned nearly 12 percent annualized since 1990, more than twice as much as the highest-asset-growth stocks.” Value investors, according to Chancellor, often times overlook changes in industry profitability conditions and therefore have difficult accurately pinpointing value opportunities. This oversight, Chancellor concludes, leads many investors “stumbling from one value trap to another.”