Contrary to what some think, Greenblatt’s model finds the Russell 2000 even more expensive than the S&P 500, ranking it in the 8th percentile. When the Russell has been at this level in the past, the index has averaged 0% to 2% over the next year and 4% to 6% over the following 24 months.

Despite the current price levels, Greenblatt maintains that  the short side opportunity lies in the most expensive stocks. “We’d expect them to do worse than the 4% to 6% returns anticipated for the index,” Greenblatt says.

Short opportunities can be found “all over the lot,” he adds. “No sector stands out.” So far this year, Gotham has enjoyed success shorting certain energy and consumer staples stocks.

Historically, Gotham has found technology to be its best sector on both the long and short sides. “Our spreads have been the best in information technology, meaning that our long technology stocks have had the most outperformance relative to our short technology stocks (as compared to long and short picks in other sectors),” Greenblatt says.

If anything distinguishes this current bull market, it is the tilt favoring large-cap growth stocks, in his view. For a value investor, the environment can be challenging.

But Greenblatt doesn’t agree with the assessment of some like Jeremy Grantham, who thinks that the markets have changed radically with stocks priced at or near 1929 levels for most of the last two decades. Grantham’s argument “is based on normalized margins which compares margins of large industrial companies 20 years ago to light-asset business models of today.”