The two Clifford Capital Partners value investment strategies (all cap and focused small cap) are unique in that they have two “sleeves” in each portfolio: Core Value and Deep Value.

What is a Core Value company? It is a high quality company that is undergoing short-term issues. And we think the market is over-reacting so it gives us the opportunity to get a great deal. It’s like a great pair of jeans. You love them, they are comfortable, they look good on you, you clearly know what you are getting when you buy them, and if you can buy them when they are cheap, you will purchase them all day long. If they have a hole or tear in them… all the better (as long as it isn’t in a big problem area). And the longer you wear them, the better you feel.

Deep Value companies are, we think, mispriced and misunderstood. They are like that pair of crushed blue velvet bell bottoms that you find when your family is cleaning out Grandma’s attic. The family laughs at them for a minute, “silly Grandma,” and casually throws them in the trash pile. But when you take a closer look, that ink scribble on the pocket looks a lot like a Jimi Hendrix autograph. “Wait,” you say, “didn’t Grandma always love Jimi Hendrix? And look over there, a ticket stub from Woodstock.” But everyone laughs, “Grandma was from Green Bay. Stop being stupid and carry out that 8 track with the rest of the clothes to the trash bin.” But you keep the pants and you keep digging, even though everyone else thinks you are crazy and “knows” that those pants have no value. But you’ve seen those pants before, and they look like the ones Hendrix wore when he played the national anthem. Eventually you find the polaroid of Grandma with Jimi Hendrix back stage at Woodstock with the writing “Stay Groovy – enjoy the pants” and the signature is a spot on match. Now everybody wants them.

Our Deep Value companies are like the bell bottoms: unloved and undervalued. While they add a bit of volatility to the strategy, they are a small portion of the portfolio (~20%-40%). We think the upside is worth the cost. And while the market has casually thrown them in the trash pile, we opportunistically overweight these holdings when we find them. It takes know-how, discipline, courage, and humility to hang on to them, as well as up the allocation, but track record has shown that they are well worth the wait.

To us, markets today look like an undiscovered backstage closet at the Fillmore. So, while our Core Value names have carried the strategy in recent times, and our Deep Value names have had about six months of significant compression (added to volatility), we are expecting markets to wake up any day now.

If you’d like more information or color on Clifford Capital Partners, please reach out anytime – roger@cliffordcap_dot_com

Stay tuned for Volume 3.