Cove Street Investment Thesis

Despite a tremendous amount of academic and practical effort, financial markets are only "occasionally efficient." Even the most cursory review of market movements over the past two decades renders any other conclusion unsupportable by common sense. Pricing inefficiencies systemically exist in the market-place due to a variety of factors. Many are due to the "business" of money management, which encourages a myopia on short term phenomena - quarterly earnings, news chasing, quarterly performance reporting - which is inherently and historically unpredictable, producing opportunities for investors who have the discipline and confidence to invest with a longer term time horizon. Another issue relates to asset size. It is simply impossible to understand with any depth 400 companies in a portfolio, and conversely, a fairly concentrated portfolio with a reasonable asset size enables in-depth fundamental research to add value, as well as the enhancement of the ability to recognize mistakes and make changes. Finally, value investing - the art of buying dollars for 60 cents - and the multitudes of permutations that have evolved over the years is not easy in practice. It requires discipline and patience, attributes that have proven not be innately natural in the institutional money management world. Whatever the asset class, value-oriented investing remains the only intellectually viable investment philosophy that not only makes common sense, but has a track record that has stood the test of time.