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Given that we have only had the Small-Cap Deep Value Portfolio for about a month and are nowhere near invested, I thought it would make sense to review exactly how this portfolio is being managed.
For as long as value investing has existed, a dangerous temptation has lurked in the cheap seats. Investors scan for low multiples (price to book, price to earnings, EV/EBIT) and inevitably find an ocean of microcaps, busted growth stories, and overleveraged has-beens trading for pennies on the dollar. Many look irresistibly cheap. Some will eventually stage a recovery and deliver 10X returns. But most will not. They'll linger, dilute, restructure, or simply disappear.
The difference between buying cheap and buying garbage often comes down to one thing: balance sheet strength. Nowhere does this distinction matter more than in U.S. small cap value. A credit-first deep value strategy (what I call taking out the garbage before you start buying) has proven over nearly a century of data to boost returns, lower risk, and make the ride far more tolerable.
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