Letter From Cobleskill: Autumn 2022

Letter From Cobleskill: Autumn 2022

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    Dear Fellow Shareholder,

    As the leaves begin to change color in Upstate New York and the nights become chilly, my fall routine kicks into gear. The first thing I do is call my perennial firewood supplier to negotiate the price and place an order. After much friendly banter during our recent call, this hard-working entrepreneur said that there will be a large price increase in 2022. Higher labor, gasoline, truck and equipment maintenance, and overall operational costs give him no choice but to raise the price. This pattern is being repeated throughout our economy.

    So, it’s not surprising that shareholders are primarily asking us the following questions:

    1. Are we in, or headed for, a recession?
    2. What does this mean to me and my investments?
  • FAM Letter From Cobleskill Autumn 2022

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1. RECESSION OR NOT?

There is a current debate about the official definition of a recession. Whether we are technically in a recession or not, there’s no doubt that most consumers are feeling the pain of higher interest rates and high inflation.

The National Bureau of Economic Research (NBER) defines a recession’s start and end dates. It relies on government information that takes time to compile, so it cannot officially designate a recession until after it starts. At the same time, the NBER’s research shows that, from February 1945 to June 2009, recessions averaged 10.8 months in duration and the expansionary periods that followed averaged 60.2 months.

Since no one knows how much longer this difficult environment will last, it can understandably create apprehension. After many conversations about this first question, however, we’ve come to understand that shareholders are ultimately seeking an answer to the second question.

2. WHAT ABOUT MY FAM FUNDS INVESTMENTS?

If you’re wondering if your FAM Funds investments are strong enough to weather the downturn, we believe the answer is “yes.” Our goal is to invest in quality businesses that have a strong balance sheet and manageable debt; cash profits to invest in growth or pay dividends; a distinct competitive differentiator; and a talented and ethical management team.

We want these companies to be positioned to not only perform well in good times, but to endure the most challenging economic conditions — and even increase market share — while emerging on the other side poised for future growth.

ON THE ROAD AGAIN

Fenimore’s research analysts continue to visit businesses, tour facilities, and have face-to-face meetings with management teams of existing holdings and prospective investments. During the month of September alone, we had 32 meetings throughout the U.S. and 8 phone calls.

This firsthand, in-depth, company-level research provides invaluable insights that help us gain a better understanding of the current challenges facing businesses while reinforcing our confidence in our holdings’ abilities to persevere and potentially thrive during a variety of environments. We believe we have a collection of quality companies that can build wealth over the long term.

HELLO AND GOOD-BYE

Fenimore is pleased to welcome Christian Snyder as our new president. He succeeds Debra Pollard, who announced her retirement after 30 years of service to our investors, associates, and community. A Cobleskill native, Deb returned to her hometown after college. During her tenure, Deb earned a steady series of promotions culminating in her appointment as president in 2016. She will remain here to help with the transition over the next few months. Deb is a dear friend and we wish her all the best as she moves into a new phase of life!

Christian joins us after working in the financial services industry for nearly two decades, most recently serving as Chief Operating Officer of the Wealth Strategies Group at Goldman Sachs Ayco Personal Financial Management. He will work closely with our management team to help guide the firm. Christian earned his bachelor’s degree in mathematical economics from Colgate University, law degree from Suffolk University Law School, and Chartered Financial Analyst (CFA) designation. He and his family live in Saratoga Springs, NY.

STAY IN TOUCH

Whenever you have questions about your investments, please contact us. Everyone has unique needs, plans, and life circumstances. For example, you may be relying on your investments to pay bills or preserve your principal, or you may be in a position to purchase more mutual fund shares while stocks are on sale.

Through one-on-one conversations, we can get to the heart of your financial objectives, explain your options, and give you the information and confidence you need to make an educated decision. Our associates are invested alongside you, so we are sensitive to your concerns and goals.

Please remember that our team is here for you at our Cobleskill and Albany offices, by phone at 800-932-3271, or via email at info@fenimoreasset.com.

Thank you for your trust and friendship.

Sincerely,
John D. Fox, CFA
CHIEF EXECUTIVE OFFICER

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Saving for a Child’s College vs. Saving for Retirement

Saving for a Child’s College vs. Saving for Retirement

Kevin Smith, CFP®, Director of Fenimore’s Private Client Services, provides insights on this popular subject. For a more in-depth look at whether you are building enough wealth for your desired retirement lifestyle, watch Kevin’s video, “Investing for What Matters Most.”

Full Video

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Investing for What Matters Most

Investing for What Matters Most

Fenimore’s Director of Private Client Services, Kevin Smith, CFP®, hosts this investor education video and covers topics such as:

  • How Your Savings Compare to Your Age Group
  • How Much Should You Save and Where
  • Paying Down Debt vs. Investing
  • Understanding Different Retirement Accounts
  • The Impact of Inflation on Your Savings
  • An Action Item Checklist
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Firsthand Research Gives Us Confidence

Firsthand Research Gives Us Confidence

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    At Fenimore Asset Management, we never try to avoid an economic slowdown. Instead, our investment research team spends its energy on finding and owning what we believe are quality companies that can weather economic turbulence and emerge from volatile periods even stronger. This includes businesses with strong, sustainable cash generation, sound balance sheets with little financial leverage, and capable management teams.

    To ensure that we have our finger on the pulse of their operations, our investment research analysts are on the road visiting companies, touring facilities, and having face-to-face meetings with management teams. It’s these in-person meetings — a longtime tenet of Fenimore’s research process — that help us gain a better understanding of the current macroeconomic challenges facing businesses while reinforcing our confidence in our holdings’ abilities to persevere and potentially thrive during a variety of environments.

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    Fenimore’s Investment FEATURES
    • Independent, In-Depth Research
      Fenimore’s extensive due diligence begins with a detailed analysis of the business, leadership, and markets to understand company fundamentals and the competitive landscape.
    • Guided by Quality
      We seek to invest in quality businesses that demonstrate defensible competitive differentiators.
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    Business-First Approach

    For nearly five decades, we have followed our business-first investment approach of conducting in-depth research at the company level. Fenimore’s steadfast focus is to invest in a collection of quality businesses that we think are becoming more valuable over time — regardless of the short-term political or economic environment.

Will Preston Quote
Will Preston

Looking Ahead

During these uncertain times, it is certain that our team will remain committed to Fenimore’s investment philosophy and principles that have successfully guided us through difficult times since 1974. We believe that our holdings will partake in future growth because their management teams are focused on shareholder interests and they possess strong financial footings to help them endure the current decline and potentially prosper when the markets recover.

John Fox
John Fox Quote

All investing involves risk including the possible loss of principal. Before investing, carefully read the fund’s prospectus which includes investment objectives, risks, charges, expenses and other information about the fund. Please call us at 800-721-5391 or visit fenimoreasset.com for a prospectus or summary prospectus.

Securities offered through Fenimore Securities, Inc. Member FINRA/SIPC, and advisory services offered through Fenimore Asset Management, Inc.


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Investor Update — June 2022

INVESTOR UPDATE — JUNE 2022

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    On Friday, June 10, the latest Consumer Price Index (CPI) showed inflation accelerated to a 40-year high in May, with the CPI increasing 8.6% year-over-year.1 This was an increase from April and halted any hope that the U.S. economy had reached “peak” inflation.

    Impact of Oil Prices

    One of the biggest contributors to surging inflation is the price of oil. At approximately $115, the price of a barrel of WTI oil is up 60% year-over-year and more than 20% since the start of the Russia-Ukraine War in late February.2 (WTI stands for West Texas Intermediate, which is a pricing benchmark commonly used for the oil industry.)

    The impact of rising oil prices is most evident to consumers at the gas pump. In the May CPI report, gas prices were up 49% year-over-year, representing roughly one-quarter of the total increase in the CPI!3 Of course, higher gas prices also drive up shipping costs and airfare.

  • William Preston, Portfolio Manager - FAM Dividend Focus Fund

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    William Preston, CFA
    Portfolio Manager,
    FAM Dividend Focus Fund

But transportation isn’t the only way higher oil prices reverberate throughout the economy. Oil has derivatives that are inputs for thousands of products ranging from plastic and packaging to clothing and medicine. This can lead to broad-based increased costs for consumers.

Impact of Inflation

Higher-than-expected and persistent inflation has forced the Federal Reserve (“the Fed”) to step-up how aggressively it fights inflation. The Fed combats inflation by raising interest rates in hopes of slowing consumer demand.

Last Wednesday (June 15), we saw this aggressiveness in action when the Fed announced its largest rate hike since 1994 (0.75 percentage points). While good for fighting long-term inflation expectations, in the short term, higher interest rates have led to lower stock valuation multiples and increased the probability of an economic recession and the potential for a reset in corporate earnings. This has pushed the market returns into bear market territory with the S&P 500 declining -24% since its all-time high on January 3, 2022.4

No one knows how much longer the bear market will last or if/when the U.S. economy will enter into a recession as a result of inflation and higher interest rates. What we do know is that recessions and bear markets do not go on forever and they have often presented us with opportunities to invest with better long-term return prospects.

Firsthand Research Gives Us Confidence

At Fenimore, we never try to avoid an economic slowdown. Instead, our research team spends its energy on finding and owning what we believe are quality companies that can weather economic turbulence and emerge from volatile periods even stronger. This includes businesses with strong, sustainable cash generation, sound balance sheets with little financial leverage, and capable management teams.

Over recent weeks, our research team has been busy on the road meeting with management teams face to face. It’s these in-person meetings — a longtime tenet of Fenimore’s research process — that help us gain a better understanding of the current macro challenges facing companies while reinforcing our confidence in our holdings’ abilities to persevere and potentially thrive during a variety of economic environments.

Looking Ahead

During these uncertain times, we’d like to reiterate what we stated in our May Investor Update. Our team tells you with certainty that we remain committed to Fenimore’s investment philosophy and principles that have successfully guided us through difficult times since 1974. We believe that our holdings will partake in future growth because their management teams are focused on shareholder interests and they possess strong financial footings to help them endure the current decline and prosper when the markets recover.

Stay Connected

If you have any questions about your investments, please connect with us at 800-721-5391, through our website’s contact us section, or via info@fenimoreasset.com. Our team also welcomes you to meet with us in either our Albany or Cobleskill location or virtually.

Thank you for your ongoing trust and we hope you have a safe and enjoyable summer.

——

1 bls.gov

2 FactSet, as of 6/16/2022

3 bls.gov, as of 6/10/2022

4 FactSet, as of 6/16/2022

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Thomas O. Putnam founded Fenimore in 1974 with two passions: conduct in-depth, firsthand, independent investment research and serve investors with excellence and integrity. Today Fenimore Asset Management, manager of the FAM Funds, is nationally recognized, yet locally rooted and independently owned. Decades have passed, but our approach endures.

Securities offered through Fenimore Securities, Inc. Member FINRA/SIPC,
and advisory services offered through Fenimore Asset Management, Inc.

© Fenimore Asset Management. All Rights Reserved.