Dear Fellow Investor,
Lately, two topics seem to drive every conversation about the stock market and broader economy: the Middle East war and artificial intelligence (“AI”). How long will the war last? How high can the price of oil go and what will its impact be on inflation and economic growth? Will the massive AI investment produce appropriate returns? What businesses might be disrupted?
Both topics raise important questions that no one can answer with precision. Some investors make economic, financial market, and geopolitical forecasts, and may even get them right for a time, but consistent long-term success is rare.
As prominent investor Howard Marks said, “You can’t predict. You can prepare.”
At Fenimore, our preparation is rooted in our fundamental research, where we spend time with our companies making careful observations and continually assessing their prospects. Rather than predicting or fixating on the what-ifs, we are focused on what is happening — particularly inside the businesses we own — and invest accordingly.
As we write this letter, the cautious tone of the headlines does not fully align with what we see at the company level. Many of our holdings continue to generate solid earnings growth even as stock prices have, in some cases, lagged that reality.
THE WAR & RECENT HISTORY
Our thoughts are with our U.S. service members and their families. We hope and pray for a swift and peaceful resolution to the war.
It is natural to be concerned about how the conflict may affect your investments. For perspective, over the past six years we have experienced a global pandemic, an economic shutdown, severe supply chain disruptions, the Russia–Ukraine war (with oil touching $127 per barrel), 9% inflation, and rising interest rates.[1]
Each of these events may have seemed like a compelling reason to exit the stock market. Yet investors who stayed the course generally fared well, as markets delivered double-digit returns during that time.
AI’S FUTURE
Before the war, the main question on investors’ minds was whether the rapid gains in AI-related tech stocks were sustainable or a speculative bubble waiting to burst. Can an industry that is spending trillions of dollars in just a few years generate adequate returns? And what about industries that AI threatens to disrupt by automating, enhancing, and commoditizing their primary services?
We believe the outcome will be uneven: some AI-native firms will be winners and others will struggle to differentiate as capabilities become more prevalent. Likewise, some companies will face meaningful pressure on their business models, while others will utilize the technology to achieve higher levels of productivity and growth.
This is why AI is part of every discussion Fenimore analysts have with our holdings. So far, despite what some stock price reactions might suggest, we are not seeing widespread disruption. Instead, we hear many examples of how companies are thoughtfully deploying AI.
In many ways, this is not new. Businesses have long adapted to evolving technologies and AI is simply the latest iteration. We will continue to assess how our companies are incorporating AI and mitigating the risk of disruption.
PREPARATION: COMPANY OBSERVATIONS
While monitoring the macroeconomic environment is important, what matters most to us are firsthand observations and business fundamentals. Since early January, our investment research analysts have met, in person or virtually, with more than 50 companies we own or are evaluating.
During these meetings, we ask challenging questions to ensure that each business continues to meet our core investment criteria and to validate our thesis that these are high-quality operations capable of delivering attractive returns over time.
Overall, what we hear is encouraging. Demand is holding up, reinvestment opportunities are intact, and competitive positions are being maintained or strengthened. These businesses are far more resilient than the headlines suggest and seem well prepared for the year ahead and long term.
STAYING THE COURSE
Quarter-to-quarter market swings matter far less than long-term compounding in our opinion. We remain focused on durable businesses with leaders who can perform across economic cycles because, in our experience, stock prices eventually follow earnings. In uncertain environments, remaining disciplined and invested in what we believe are high-quality companies has been our mainstay for 52 years.
Our associates are happy to speak with you. Please do not hesitate to connect with us in our Cobleskill or Albany office, or from the comfort of your own home. Call 800-932-3271 or email us at info@fenimoreasset.com.
Thank you for your confidence in us.
Sincerely,
Fenimore Investment Research Team
Andrew F. Boord
Bryan L. Engler, CFA®
Kevin D. Gioia, CFA®
Antonio C. Goodwyn, CFA®
Paul C. Hogan, CFA®
Robert L. Peters
William W. Preston, CFA®
Marc D. Roberts, CFA®
Drew P. Wilson, CFA®
[1] FactSet as of 3/31/2026.
This letter is intended for FAM Shareholders and is authorized for distribution only when preceded or accompanied by a prospectus or summary prospectus for the FAM Value Fund, FAM Dividend Focus Fund and FAM Small Cap Fund. Past performance is not indicative of future results. Investment returns may fluctuate: the value of your investment upon redemption may be more or less than the initial amount invested. Please read the prospectus or summary prospectus for more complete details, including investment objectives, risk considerations and expenses, before you invest. FAM Funds are distributed by Fenimore Securities, Inc., Cobleskill, NY 12043, 800-932-3271. Current performance numbers are available at fenimoreasset.com.
This presentation may contain statements based on the current beliefs and expectations of Fenimore’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Any references herein to any of Fenimore’s past or present investments, portfolio characteristics, or performance, have been provided for illustrative purposes only. It should not be assumed that these investments were or will be profitable or that any future investments will be profitable or will equal the performance of these investments. There can be no guarantee that the investment objectives of Fenimore will be achieved. Any investment entails a risk of loss. Unless otherwise noted, information included herein is presented as of the date indicated on the cover page and may change at any time without notice. Fenimore Asset Management Inc. is an SEC registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made.