1) Value investors are stingy and therefore only purchase when there are blatant mispricings, and
2) Mainstream finance professionals believe higher returns only come from higher risk; therefore to maximize returns it makes sense for them to be fully invested
During times of (often irrational) market exuberance, however, value investors look like chumps, as their cash holdings return far less than the risky holdings of their mainstream peers. When the market eventually crashes, however, their cash positions allow them to profit from pricing opportunities that have become available due to market fears.
The current recession has given many cash hoarding value investors the opportunity to pick up companies at bargain basement prices. On this site alone, during the market lows of late 2008 and early 2009, several companies were discovered as trading far below their intrinsic values: profitable companies with net tangible (and sometimes even liquid) assets in excess of their market values. For example, one such company we owned and liked (before it tripled in value) was Williams-Sonoma (WSM), which was in no danger of going bankrupt, yet traded below its liquidation value.
By avoiding being fully invested during bouts of market exuberance, investors are better able to take advantage of the stellar opportunities which present themselves from time to time in the market. But history has shown that few people can actually refrain from jumping on rising markets. Those that can, however, are in the best position to profit from the market's folly.