Do you think that the pace of the rally will continue to slacken?

Yes, I believe it will. We've seen the dramatic lift-off that created very robust returns from last year's low on March 9, and now there are more modest expectations about the pace of the rally. We've also seen some regular interruptions—that is, brief downturns between 9% and 10% such as we had in January. I expect that pattern to continue because people are wary about the economy. The experiences of the last two years are still fresh in their minds.

On the other hand, I am optimistic because investors still seem so cautious about making commitments to equities. My contrarian streak tells me that this caution is not entirely well-placed—I don't think we're likely to see a repeat of 2008, which is the worry that seems to be driving this hesitance. My guess is that, by historical standards, many investors are woefully under-allocated in equities.

What other market trends do you see taking shape?

 think we're in for a period of substantially increased M&A (merger & acquisition) activity. In spite of the recovery, organic growth remains hard for businesses to come by, so they'll be looking for other ways to boost revenue such as buying up smaller or financially weaker competitors. Corporate balance sheets are generally in excellent condition, which puts strong firms in a position to buy and makes small, well-managed companies look that much more enticing as targets. With the economy slowly recovering, the need for companies to hoard cash has passed, and credit is more readily available for healthy businesses. Finally, corporate America in general did a great job cutting costs in the worst days of the recession; now I suspect that they are looking for new ways to exercise that financial discipline.

What are the challenges of managing portfolios with a disciplined value approach in today's relatively less volatile market?

There are always challenges, but I think it's less challenging today than it was in the more extreme moments of the bear market and in the bull market that preceded the crash. During the middle of the decade, there were far fewer attractive purchase candidates, which made things very challenging. The bear market obviously created an enormous number of opportunities, but we were also in the middle of a global financial and economic crisis. Today, we've had chances to sell stocks that look fully priced to us. We're also seeing plenty of companies that look mispriced to us due to low expectations in the short run, but that looks promising to us over the long run. I think it's a very good time to be an equity investor with a disciplined, long-term approach.

Where have you been finding value lately?

It's really a stock-by-stock kind of environment. We haven't really seen entire industries that are completely out of favor as a group. We have seen some interesting themes, but they're just not at the level that we saw in late 2008 and early 2009. We've seen earnings disappointments where expectations for a quick recovery were dashed. There have also been some delayed recoveries. In addition, we've seen some underlying currents that look very encouraging to us, with some businesses starting to consolidate. We're finding that, as banks become healthier, they're able to get tougher on their difficult loans, so credit may actually become more difficult to obtain for weaker companies. This should lead to a sorting out process over the next year or so, in which financially strong companies can exploit their advantage.

In industries such as trucking and energy services, we're finding companies where management teams are suddenly, and pleasantly, surprised with the turns in their business. These present very interesting opportunities for us because you can be sure if management is surprised by how quickly their business is turning around, the market is going to be surprised as well.

What is your outlook for the Natural Resources sector and industrial companies?

Both areas took a little breather in the first quarter of 2010, mostly due to a strengthening U.S. dollar. However, an ongoing rally for the dollar is not a bet that I would make for the long run. Our currency was once again awarded safe haven status amid global debt problems, but this could prove temporary because for every financially troubled eurozone country, there is a U.S. state in almost comparably dismal financial condition. With the dollar unlikely to keep rallying and each of these area's sound fundamentals, we're still pretty bullish on the long-term prospects for our Natural Resources industries and industrial companies.

Are you still seeing attractive opportunities in foreign stocks?

Absolutely—we continue to opportunistically increase our exposure to foreign stocks, especially with the help of some key new additions to our investment staff—Portfolio Manager and Managing Director, George Wyper, and analysts Dilip Badlani and Meena Mallipeddi. Each brings a wealth of expertise and experience to our expanding global efforts.