As value investors, we seek to partner with managers who share our value investing philosophy. What that specifically means to us is that we look for managers who attempt to purchase securities at significant discounts to intrinsic value (i.e., "cheap" securities) and are not willing to pay for the future growth of the company from which the security is derived. This difference between market price (the price paid for the security) and intrinsic value (the estimated value of the security) was famously labeled "margin of safety" by Benjamin Graham. The margin of safety can in fact be viewed as a risk management tool employed by disciplined value investors as, all else being equal, securities purchased at steep discounts to intrinsic value tend not to suffer as greatly during strong down markets and typically recover much more quickly in subsequent market upswings than more expensive or fully valued securities. As a result, over the long term, well-constructed value portfolios can offer significant downside protection with strong upside participation, which can lead to sizable outperformance versus market benchmarks over time.
We also believe that the more constraints or restrictions you place on a manager, the more you limit the potential performance of that manager. Thus, we give our managers broad mandates to identify and invest in those securities that they believe present the most attractive risk/return profile at a given point in time. Our managers are therefore free to invest across the capital structure, in equities, bonds, convertibles, etc., as well as across market capitalizations, including large, mid, small, micro, and nano caps. We firmly believe that this freedom and flexibility allows talented investors to produce superior performance over the long term.