Some have suggested that the first half of 2011 looked uncannily like that of 2010. We admit that there are some striking similarities.

We believe that the fortunes of quality companies in all asset classes will resemble growth in the economy-slow and steady, not very dramatic, but in retrospect more than satisfying.

We suspect that, unlike those of 2002 and 2008, the stock market of 2011 will be remembered not for cataclysmic events or the severity of its losses, which weren't nearly as bad as one might think, but for its daily drama of extreme volatility.

We remain disciplined, bottom-up stock pickers with a time horizon measured in years, so our sights are trained squarely on the long run.

"Just when you thought it was safe to go back in the market..." In roughly two years we have moved from a market collapse to a market malaise.

What inspires our confidence in the long-term prospects for stocks? As is often the case, we look to history for some instruction, while keeping in mind that investing must be done looking forward, not backward.

The stock market enjoyed a very good year in 2010, but it was no normal year, given ongoing economic here in the United States, as well as in China and Europe.

Returning to the more narrow sphere of stocks, we have noticed that the world seems to have been waiting for a while now for large-cap to post a pronounced gain in performance at the expense of their small-cap counterparts.

It was one year ago that, taking a cue from a Bob Dylan song, we wrote that something significant was happening in the markets, but the nature and degree of the event had not yet become clear. The intervening 12 months have certainly clarified things, in about as painful and destructive a fashion as possible from an investment standpoint.

The economy is the elephant in the room. The recent rally was fueled in large part by investors' expectations of an economic recovery that, perhaps needless to say, has thus far not materialized.

It was a healthy development for share prices to climb back upward through the end of the year, and a worldwide rally lifted stock prices in all asset classes and nearly every sector and industry.

While the past decade was very tough, going forward we are confident that equities will not just survive, but prosper—that is, creating returns in excess of inflation.

The first six months of 2008 gave even the most serene investor cause for anxiety, if not outright panic: the credit crisis, housing bubble, subprime implosion, falling dollar, stumbling equity prices, a stalled economy, rapidly rising oil prices, and swooning smaller-company stock prices.

As much as the current bearish period has convinced us that major changes are working their way through the market, it seems to us that there is a significant element to the story that has not received as much attention, namely, the shift in the status of the U.S. in the global economy.

The word "bailout" has entered our collective lexicon; Lehman Brothers, AIG, and the U.S. auto industry.

We think that late in 2009 we may be seeing scattered signs of an economic comeback, one of which may be a stock market showing signs of a recovery.

Like the Rolling Stones, the bull market just kept going and going and going, almost automatic in its overall upward movement, its success seemingly taken for granted, with so many investors sure that the big hits would not fade away.

One of the advantages of employing an all-weather strategy to select smaller company stocks is that we continue to do what we have always done regardless of the market's behavior. When smaller company stock prices were on the rise, it was more challenging to find the compelling values that have always been our stock in trade, but the search goes on whether the overall small-cap market is moving up or down.

When the subprime mortgage implosion first became headline news in July 2007, the event was treated in some quarters as the locomotive leading a potentially long train of financial calamities.

Two thousand seven was a difficult year, at least in its second half. Owing to our belief that down market performance is a key indicator of a portfolio’s strength, we were generally satisfied with the year's results.

After three full decades managing small-cap value portfolios, we thought that we had seen all of the various movements, fads and trends that periodically capture the imaginations (to say nothing of the wallets) of investors. It was always easy for us to be amused at such things.

Some investors may be concerned that small-cap's run has been of such longduration that the asset class is poised for a long period of desultory performance, with the recent downturn a harbinger of things to come. We respectfully disagree.

As one year fades into permanent night and a new one greets its first day, talk naturally turns to transitions.

Small-cap companies have traditionally been regarded as more volatile and speculative, and thus lacking the greater level of safety of their larger-cap cohorts. Here, of course, we part company with the conventional wisdom.

Since the dawn of the current decade, investors can be forgiven for feeling as though they have been subsisting on a starvation diet.

We think that we are headed toward what we would describe as a Lake Wobegon Market, inspired by Garrison Keillor's now-classic tales about the fictional Minnesota town in which "the women are strong, the men are good-looking, and all the children are above average," the place where one can purchase food at Ralph's Pretty Good Grocery.

The '90s ended, and the new era began, with a stubborn assertion of one of the oldest rules of equity investing known to humankind, namely that markets are cyclical.

In the past five years of terrific small-cap value performance, we continued to scrutinize those areas that were not enjoying the benefits of value's good fortune. This entails searching in areas that others are ignoring. Markets are always changing, but this aspect of our approach remains the same.

Uncertainty has left many small-cap investors feeling stranded in tumultuous waters, casting about for calm seas, cloudless skies and a steady course.

Our view is that the most effective way for us to navigate the potentially treacherous waters between the Scylla of rising interest rates and Charybdis of possible inflation is to continue doing what we have always done -- search for what we think are financially strong, attractively priced small companies.

Whether or not small-cap value can continue its market-leading ride is a question that perhaps the collective brain power assembled in Jeopardy's upcoming "Tournament of Champions" would not mind tackling.

Our goal is to take advantage of falling prices by adding to existing positions and initiating new ones in businesses that we find attractive.

As any viewer of the film The Matrix: Reloaded can testify, perceptions are often mistaken and reality is not always what it appears to be.

As of this writing, none of the major market indices has regained the peaks that they reached in March 2000. Even allowing for the recent rally, the past three years have been a trying period for investors.

Just as we argued at the end of last year that the market was not as bad as it looked, we would now submit that the market is not quite as vigorous as it appears.

Like many experienced value investors, we habitually get a little tense wheneverstock market returns run up virtually unimpeded for months at a time. It simply goes against the grain of what we have learned in three-plus decades of investing.

Enron, Kmart, WorldCom, Xerox ...the list of recently fallen giants runs on and on. Their decline has shaken the equity world, creating the perception of a stock market in ruins, a once proud and vital institution reduced to rubble by greed and chicanery.

The one advantage of bear markets for value investors (even those bear periods in which value stocks perform well) has been the ample supply of beaten-up companies. Our task is to sort through those industries that have been punished and find what we think are well-managed, financially strong businesses.

The current period is one that cannot end quickly enough for most investors, who at this time last year were already tired of trying to survive the bear market that began in March 2000.

In the current uncertain slow-growth economy, our belief is that small-caps, being generally leaner and meaner, will prove more adaptable and better able to handle financial adversity than their larger counterparts.