OUR FUNDAMENTAL ANALYSIS GIVES US CONFIDENCE

For example:

1. Early in the pandemic, I spoke with the leader of one of our long-term industrial holdings. He said he expected the U.S. to soon be in the midst of an economic shutdown, that it would be at least a year before we returned to any sense of normalcy, and that they were ready. He said their revenue could decrease by as much as 50% and they could still break even due to their financial profile. This was a solid business, in our opinion, and these insights gave us confidence to maintain our stake even as the stock price dropped significantly. Today, we are very pleased with the stock price.

2. Our research analysts conducted an in-depth review of a longtime automobile industry holding in the spring of 2020. We know their leaders and wanted to assess if they could survive with their showrooms closed due to the virus. With $600 million in cash, access to ample credit, and manageable debt we believed they could. Our thesis was correct and we estimate that they have a long runway for growth.

3. Simultaneously, there were several holdings where we lost confidence, so we sold them and redirected dollars into what the portfolio managers viewed as higher quality businesses with staying power. Our personal knowledge of these operations helped us make educated decisions.

We can never know the future, but our researchers know our holdings and their management. This gives us the confidence we need to execute our long-term strategy: buying stock in what we deem to be quality businesses that meet our exacting standards and are ideally positioned to do well in good times and persevere through adversity.

As fundamental value investors with a long-term mindset, the firsthand knowledge we have of our companies, their industries, and their competitors, delivers high-conviction portfolios.

Fenimore Asset Management: Fenimore, manager of the FAM Funds, has been providing differentiated investment management solutions for nearly five decades. Learn more about our unique history and how we partner. Call 800-721-5391.

Q3 Earnings: Resilient Small Caps

THE QUEST FOR QUALITY SMALL-CAP STOCKS

A Quarter Century of Finding Value
in Dividend-Paying Mid-Cap Companies

In searching for the right stocks, mid-caps are a fertile space because they typically grow at a faster clip than large-cap companies. For the most part, the faster a company grows, the faster it can grow its dividend to shareholders as well. The dividend provides additional yield that in turn boosts long-term portfolio gains. While there are numerous mutual funds focused on large-cap dividend paying strategies, FAM’s focus on the mid-cap sector essentially doubles the number of companies to consider.

When evaluating these companies, Mr. Hogan and Co-Manager William Preston travel extensively to meet management teams in-person to not only get a sense of the company ethos but gain insights on whether a company is best in class and has room to grow.

Trade shows too offer a unique vantage point to see a company’s potential in action. A key question Mr. Hogan and Mr. Preston seek to answer is why clients want to do business with a particular company. Such events offer confirmation. Mr. Hogan recalled that about a decade ago one of the fund’s original holdings IDEX Corporation unveiled a new battery-operated ‘jaws of life’ tool demonstrating how with little training anyone could save a life.

When we look at our investment strategy, the first thing we are always concerned about is preservation of capital,” said Mr. Hogan. “So for us it’s first preserve capital, second generate an attractive return, and third, let the compounders compound.”

¹ Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG).
² Morningstar 3, 5, 10 year periods vs. the Russell Midcap Index.