This New Deep Value Play Works Because It's Not Fashionable

Premium Flagship Update

Deep value is never fashionable, and that is exactly why it works. The market does not hand you bargains when everyone feels cautious and rational. It hands you bargains when capital is crowded into the same stories, when entire sectors are ignored, and when the average investor decides that “cheap” must mean “broken.”

That is the setup we are still living with as 2026 begins. The popular, narrative driven parts of the market remain expensive, while plenty of ordinary businesses with tangible assets, real cash flows, and survivable balance sheets trade as if their best days are behind them.

That is where Ben Graham and Marty Whitman would go hunting.

The first point Graham would make is simple. Price matters more than prediction. You do not need a perfect forecast if you buy at a big enough discount to conservative value. The whole discipline begins with refusing to pay for optimism. In a market where investors are still willing to assign rich multiples to the right themes, deep value investors have an edge because they are willing to buy what is unloved, overlooked, or merely boring, as long as the numbers provide a margin of safety.

Graham’s margin of safety is not a motivational poster. It is arithmetic. It is the difference between what you pay and what you can reasonably justify as value using conservative assumptions. If the business performs worse than expected, you still do fine. If the economy stumbles, you still have a cushion. If the market stays irrational longer than you would like, you still have time on your side because you did not overpay in the first place. Deep value is not about being right on the story. It is about being right on the price.

Whitman would agree with all of that, then sharpen the knife. He would tell you that cheap is not enough. Cheap and fragile is how investors get carried out. His framework is built around financial strength and the ability to survive. The point is not to buy distressed companies and pray for a turnaround. The point is to buy securities with meaningful discounts to intrinsic value where the balance sheet gives you staying power and management has multiple ways to unlock value over time.

That distinction matters in today’s market because we are not in a classic “blood in the streets” credit environment. Credit is calm, spreads are not screaming, and liquidity has not disappeared. When credit is easy and markets are functioning, you see fewer obvious cigar butt bargains. There are fewer forced liquidations, fewer busted capital structures, and fewer moments where good assets get sold for bad reasons. That does not eliminate deep value. It changes the hunting ground. Instead of relying on panic pricing, you look for neglect, complexity, and temporary disappointment.

That’s perfectly describes the stocks in the Small-Cap Deep Value Portfolio - and the new one we’re putting in there today.