FAM Funds’ Annual Shareholder Informational Meeting Webcast

The event was held on October 9, 2018. 

  • Look at the past 10 years and discover how time in the market, not market timing, can make a big difference
  • See how our funds performed
  • Watch an insightful Q&A session with our Investment Research Team

 

Please see Fenimore disclosure.

What’s Happening in the Stock Market?

We believe there are two key reasons for the recent stock market decline. First of all, there is a small decrease in earnings power. Secondly, company valuations have decreased.*

1. Earnings Power Decrease – In some industries, corporate earnings are not coming in as strong as expected. This is the case with industrials, banking, and some technology companies. These stocks are declining as investors seem to be re-evaluating the earnings power of the underlying businesses. We think that there are many reasons earnings are less than expected.

For example, management teams are citing increased raw material costs, higher wages, and growing transportation expenses. Some of this is caused by tariffs, such as steel, and some by natural market forces in an expanding economy including labor and transportation. These increasing costs are reducing profit margins.

Additionally, while America’s economy is very strong, in our opinion, we are hearing about a slowdown in China and Europe. Some of this is related to tariffs, but there are probably other factors at work.

2. Decreased Valuations – While investors seem to be re-evaluating the earnings power of businesses and there is a slowdown overseas, stocks were also trading at high valuations in our estimation. The stock market has enjoyed double-digit returns for several years as the earnings power of corporations increased and the multiple of earnings that investors were willing to pay also increased. Given the uncertainty on earnings growth, investors appear to be no longer willing to pay those high price-to-earnings multiples.

Due to a small decline in earnings power for some industries and companies, and a big decline in stock prices for many businesses, we are seeking to add to positions and invest in new, high-quality enterprises at a discount to our estimate of their intrinsic value. For more than four decades, Fenimore has seen stock market downturns as opportunities to strengthen portfolios and build wealth over the long term.

*FactSet & Bloomberg financial data systems. Data as of 10/23/18.

Please see Fenimore disclosure.

A View from Research: Tariffs and Trade

Tariffs and Trade – Raised tariffs are leading to increased tensions with some of our largest trading partners while creating uncertainty and volatility in equity markets. Nobody knows what will ultimately come from these maneuvers or the eventual impact on business values. At the same time, management teams of the companies we hold are implementing plans to help lessen the negative impacts under various possible scenarios.*

* FactSet & Bloomberg financial data systems. Data as of 8/31/18.

Please see Fenimore disclosure.

A View from Research: Interest Rates

Interest Rates – While interest rates have risen, they remain low. We believe that our long-held aversion to enterprises with a lot of debt, as well as our more recent strategic avoidance of corporations that suffer with higher interest rates, has our portfolios well-positioned should rates continue to rise.*

* FactSet & Bloomberg financial data systems. Data as of 8/31/18.

Please see Fenimore disclosure.

A View from Research: Inflation

Inflation – In addition to wages, costs for commodities, energy, and transportation have been on the rise. These costs are forcing some firms to raise prices to maintain profits. One of Fenimore’s key indicators of a quality business is the ability to raise prices without much customer pushback. In aggregate, we estimate that our portfolio companies are in good shape, but it is something we continue to watch.*

* FactSet & Bloomberg financial data systems. Data as of 8/31/18.

Please see Fenimore disclosure.

Volatility Can Provide Opportunities

“If volatility continues, it can provide opportunities to invest in quality enterprises – that meet our criteria – at a discount. This is key as we seek to continually enhance the Fund’s holdings while preserving and growing your wealth over the long term.” — John D. Fox, CFA, CIO

Read FAM Funds’ Semi-Annual Letters:
Chairman’s Letter, FAM Value Fund, FAM Equity-Income Fund, FAM Small Cap Fund