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FAM Letter From Cobleskill Autumn 2022

Letter From Cobleskill: Autumn 2022

Written by Wright Design on . Posted in Featured News & Insights, Insights, Investment Insights.

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

Written by Wright Design on . Posted in Investing Basics, Investor Education, Retirement Resource, Videos, Videos & Podcasts.

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.”

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Investing for What Matters Most

Investing for What Matters Most

Written by Wright Design on . Posted in Investing Basics, Investor Education, Retirement Resource, Videos, Videos & Podcasts.

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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Kevin in Field - Factory

Firsthand Research Gives Us Confidence

Written by Wright Design on . Posted in Insights, Investment Insights.

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

Written by Wright Design on . Posted in Featured News & Insights, Investment Insights.

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.

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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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John Fox

Investor Update — May 2022

Written by Wright Design on . Posted in Investment Insights.

Investor Update — May 2022

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    As we came into the new year, the consensus was that the U.S. economy and earnings of American companies would grow. Perhaps at a slower rate than 2021’s pace, but still grow. It was also well understood that the Federal Reserve (“the Fed”) would be reducing the stimulus put in place at the pandemic’s onset, meaning they would increase short-term interest rates to cool off the rate of inflation.

    As 2022 is unfolding, two events have increased the rate of inflation and forced the Fed to act quicker and, perhaps, with more intensity than previously expected.

    1. Russia’s invasion of Ukraine has put upward pressure on energy and food costs. Russia is one of the largest producers of oil in the world and a large share of the world’s wheat supply comes from the Russia/Ukraine region. The inflation report released this morning (5/11/2022) shows significant year-over-year increases in both energy and food costs.

    2. China’s zero-COVID policy is resulting in factory and port closures there. As China is a major exporter of parts and finished products, these closures are causing American businesses to scramble to obtain products they need. In many cases, they are paying significant premiums for airfreight or other logistics options. To cover these transportation costs, domestic companies may pass them on to their customers in the form of higher prices.
  • CEO John Fox, CFA

    CEO John Fox, CFA


    “I want to contrast this with Fenimore’s holdings which, in our opinion, are competitively advantaged firms with significant cash profits and reasonable levels of debt. No matter what happens in the economy or markets, financially strong companies can weather the storm.”
    John Fox, CEO

One of the potential outcomes of higher interest rates and energy costs is that they slow the economy so much that we experience a recession.

You have heard us say that stock prices follow earnings and, in a recession, it is normal for company profits to decline. The stock market is trying to figure out if we will have a recession and, if so, when. Of course, no one knows the answer and this is creating volatility in stock prices. The one thing we do know about recessions is that they end and a new cycle of growth begins.

Corporate Profits

An interesting aspect of the current “recession watch” is how strong corporate profits are today. Our Investment Research team recently finished digesting a couple hundred earnings reports for the quarter ended March 31, 2022. Earnings continue to grow and, in some cases, companies have reported record results. In cases where earnings are down, it is usually due to temporary factors like elevated transportation costs. We don’t know if there will be an overall decline in earnings at some point, but we are watching results carefully.

Additionally, our analysts continue to travel and meet with our holdings’ management teams — we just visited two in Dallas and Richmond — to ensure that we have our finger on the pulse of their operations.

  • A noteworthy point: Some of the largest declines in the stock market this year are from speculative companies that may not be profitable, generate cash flow, or have an established business model. I want to contrast this with Fenimore’s holdings which, in our opinion, are competitively advantaged firms with significant cash profits and reasonable levels of debt. No matter what happens in the economy or markets, financially strong companies can weather the storm.
Looking Ahead

During these uncertain times, we can tell you with certainty that we remain committed to Fenimore’s investment philosophy and tenets that have successfully guided us through difficult times in the past. 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.

We’re Here for You

Please contact us with any questions or concerns 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.

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Letter From Cobleskill spring 2022

Letter From Cobleskill: Spring 2022

Written by Wright Design on . Posted in Insights, Investment Insights.

Letter From Cobleskill: Spring 2022

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    Dear Fellow Shareholder,

    As I write this, our thoughts and hearts are with the people of Ukraine. May our world leaders soon find a path to peace.

    After a terrific 2021, the stock market has dropped 10% to 20%, depending on the index, since the beginning of 2022.1 The war in Ukraine has certainly played a role, but that is not the only reason in our view. As we entered the year, stock valuations were stretched and this left stock prices at an all-time high and susceptible to decline. Additionally, the inflation that began gripping our nation late last year has proven to be more firmly entrenched than originally believed.

    Inflation has led to decreased consumer spending as higher prices on essentials like energy and groceries are forcing many people to cut back on discretionary spending (such as vacations and entertainment). As the first quarter ended, the Federal Reserve was beginning the gradual and delicate balancing act of trying to raise interest rates enough to further slow spending — and inflation — but not so much as to trigger a recession.

  • Letter From Cobleskill spring 2022

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As long-term investors, it is always helpful to remember that stock market downturns are part of the experience. I have been at Fenimore for 26 years and in every one of those years but one, the market had a decline of 5% or more at least once during the year. This is a normal part of stock investing and, while some uncertainty lies ahead, we see no reason for panic.

First, the current downturn started when our economy was in a position of great strength with consumer spending and corporate earnings at record highs. This is helping to cushion the fall. In addition, interest rates, while rising, are still low by historical standards.

At the same time, what reassures us the most about the days ahead is what our research analysts are hearing directly from the individual companies in which we invest. In recent months, we have met with dozens of businesses to discuss the health of their operations and their roadmaps to growth. While there are certainly challenges (global supply chain problems and elevated transportation prices will be with us the rest of the year), these executives are far from pessimistic.

They intend to grow, reinvest, make acquisitions, and return profits to shareholders in the form of stock buybacks and increased dividends — maybe not to the degree we thought possible three months ago, but certainly at what we consider healthy levels. Overall, these leaders reported that order backlogs are robust, business remains good, and profit margins, while down, are still expected to allow for growth-related activities. We are confident in the collection of businesses in our funds.

Fenimore continues to invest toward a return to “normal.” This means focusing on quality companies that meet our rigorous standards and have the ability, in our opinion, to weather the challenging times and excel when the environment is better. We have made slight adjustments in the funds with an eye on strengthening positions in well-managed, reasonably-priced businesses that may be experiencing short-term pressures, but that we believe should be stronger three years from now. Similarly, we reduced our stakes in companies whose prices peaked in our view and whose long-term prospects are not as favorable.

A DECADE OF DILIGENT MANAGEMENT

Fenimore is proud to celebrate the 10-year anniversary of our FAM Small Cap Fund (FAMFX). Our team is pleased with the performance we delivered for shareholders over that time while seeking to mitigate risk. Under the direction of Portfolio Managers Andrew Boord and Kevin Gioia, we pursue quality, solidly profitable, and sustainable small-cap companies with long-term growth potential. Congratulations to Andrew and Kevin and the entire investment research team! We also thank everyone who is invested in FAMFX and look forward to the next decade.

LET’S CONNECT

We value our personal connections with shareholders. You can reach us with any questions at 800-932-3271, 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.

Sincerely,
John D. Fox, CFA
CHIEF EXECUTIVE OFFICER

——

1 FactSet, as of 3/18/2022

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