Baum: "One of the most important things to look for is this: It is not enough to simply find stocks that are cheap on fundamentals. I think it's merely the first step. The second thing is to identify a near-term catalyst that could cause perception to change. In the stocks we invest, we would like to not just identify one catalyst but really multiple potential catalysts. With that sort of support, at least one or more than one catalyst would come to fruition, and you can get some very nice upside for the stocks.

When we buy a value stock, we'd like to see the turn at hand or feel that there is a data point which causes the market to turn more favorable. Another important factor is for the companies to have defensible niches -- whether there are barriers to entry. Because we're looking at mid-cap companies, it's very important for them to have a very defensible position. You don't want a market or an industry that is becoming commoditized. Especially for smaller companies, they have to be able to excel in at least one area with patents or with some legislation preventing new entrance or if innovative new products that give the company an edge."