Q4 Earnings Takeaway: Strategic Capital Allocation is Key

Written by Wright Design on March 10, 2023. Posted in Featured News & Insights, Investment Insights.

Q4 Earnings Takeaway: Strategic Capital Allocation is Key

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In an environment where significant free cash flow generation, strong balance sheets, and superior management teams are crucial to company performance (and even survival), we believe our focus on high-quality enterprises with solid financials is more important than ever.

Strategic capital allocation is one of the most important activities management teams do based on our experience of nearly 50 years. We strive to invest in companies that, after paying business expenses, generate more cash than they need and in turn seek to increase shareholder value.

With excess free cash, leadership has five capital allocation choices.
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1. Invest in the Business

This includes building new plants, adding more stores, increasing inventory, and research and development.

2. Impact the Balance Sheet

Put cash on the balance sheet.
Pay down debt.

3. Conduct Mergers and Acquisitions

Companies can acquire businesses to accelerate their growth.
When they acquire another firm, this tends to increase sales, profits, and their stock price.

4. Pay a Dividend

We seek companies that pay a dividend and consistently increase that dividend over time. We believe dividend growth is important because only businesses that are growing their cash flow are able to consistently grow their dividends. We favor investing in businesses that are growing their dividends quickly because it means the underlying operation is expanding.

5. Buy Back Stock

A stock buyback is when a corporation purchases its own shares in the stock market and it demonstrates the management team’s confidence in their business.
A buyback reduces the number of shares outstanding and this increases earnings per share and, frequently, the stock’s value.
All buybacks are not alike. Just as we seek to purchase shares at a discount to a company’s value, we prefer businesses that repurchase their shares at reasonable valuations as well.

Across Fenimore’s three mutual funds (FAM Funds), 100% of our holdings are employing one or more of these strategic tools. This bolsters our confidence in their leaders and business.

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Quality Investing Part 1: Fenimore Approach

Written by Wright Design on January 26, 2023. Posted in Videos, Videos & Podcasts.

QUALITY INVESTING PART 1: FENIMORE APPROACH

As part of our Quality Investing series, William Preston, Portfolio Manager of the FAM Dividend Focus Fund, and Anne Putnam, Senior Vice President:

Discuss the current state of the market and economy after a volatile year
Share the definition of quality as Fenimore uses it in equity research

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Quality Investing Part 2: The Importance of Discipline

Written by Wright Design on January 26, 2023. Posted in Videos, Videos & Podcasts.

Quality Investing Part 2: The Importance of Discipline

As part of our Quality Investing series, William Preston, Portfolio Manager of the FAM Dividend Focus Fund, and Anne Putnam, Senior Vice President:

Review Fenimore’s approach of using quality in active management to structure portfolios
Help us understand what statistically reinforces investors need to be long-term focused and how to assist in managing emotion in a bear market

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Quality Investing Part 3: Risk Analysis at FAM

Written by Wright Design on January 26, 2023. Posted in Videos, Videos & Podcasts.

Quality Investing Part 3: Risk Analysis at FAM

As part of our Quality Investing series, William Preston, Portfolio Manager of the FAM Dividend Focus Fund, and Anne Putnam, Senior Vice President:

Define risk as it is considered at Fenimore
Discuss Fenimore’s investment approach from initial screening through allocation as we seek select, quality businesses

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Quality Investing Part 4: Statistic Results

Written by Wright Design on January 26, 2023. Posted in Videos, Videos & Podcasts.

Quality Investing Part 4: Statistic Results

As part of our Quality Investing series, William Preston, Portfolio Manager of the FAM Dividend Focus Fund, and Anne Putnam, Senior Vice President:

Define downside capture and explain a key measure of success
Review the downside capture ratio as it relates to the FAM Funds

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Quality Investing: Its Impact During Down Markets

Written by Wright Design on November 29, 2022. Posted in Featured News & Insights, Investment Insights.

Quality Investing: Its Impact During Down Markets

Investment Insights: Fenimore’s Latest White Paper

William Preston, Portfolio Manager of the FAM Dividend Focus Fund, discusses how Fenimore’s mutual funds have performed in down markets over the decades and analyzes their quality characteristics.

Highlights Include:

Achieving long-term investment goals usually depends on staying invested during down markets and having an established risk management process.
The downside capture ratio of Fenimore’s three equity mutual funds helps quantify the benefits of our risk management approach.
Fenimore Asset Management conducts firsthand research and seeks to invest in select, quality businesses. We believe it is our holdings’ collective quality characteristics that have helped our mutual funds typically outperform during down markets.

Read Here

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FAM Funds Shareholder Services Update

Written by Wright Design on November 7, 2022. Posted in Featured News & Insights, Videos, Videos & Podcasts.

FAM Funds Shareholder Services Update

Liza Baran, Director of Shareholder Services, highlights service enhancements and reinforces the various ways you have direct access to our team.

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Letter From Cobleskill: Autumn 2022

Written by Wright Design on October 4, 2022. 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?
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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

Written by Wright Design on August 12, 2022. 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.”

Full Video

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