Summer Fund Updates

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FAM Value Fund

  • John Fox, Chief Investment Officer and Co-Manager, and the Fund were featured in May’s MONEY magazine in an article “A New Take On Safe Stocks.”
  • John, the Fund, our investment philosophy, and stock stories were also showcased in the industry publication Value Investor Insight — the article was entitled “Down to Business.”

FAM Equity-Income Fund

  • The Fund celebrated its 20th Anniversary on April 1, 2016! Paul Hogan and Thomas Putnam have managed the Fund together since its inception providing consistent oversight. This continuity is very rare in the ever-changing investment industry.
  • Paul and the Fund were featured in the industry publication The Wall Street Transcript.

FAM Small Cap Fund

  • “Small Caps: Finding Great Companies” (Podcast) — Andrew Boord, Co-Manager, discusses where he’s currently finding value in the small-cap space, areas he avoids, and his outlook. Listen to the Podcast.
  • In a little more than four years, the Fund has grown considerably due to strong investor interest and its performance.

Analysts Across America

MapOur Investment Research Analysts have spent significant time on the road this year meeting with companies, speaking with management teams, touring facilities, and attending industry conferences. Our experience dictates that this is the best way to make informed, insightful investment decisions.

We want to know management very well, and it’s important to see how their operational view changes over time — especially during periods of adversity. Some topics we address are: business and industry trends, the competitive environment, financial goals, and capital allocation decisions.

Dividend Growth Pays

The universe of dividend-paying companies can be segmented by their growth profile, ranging from businesses that pay a static dividend to companies that pay a higher dividend every year. The data shows that since 1972 S&P 500 corporations that grow their dividend, or initiate a dividend, post higher returns than those that do not raise their dividend. Historically, dividend increases have signaled management’s confidence in the prospects of their business.

Ned Davis Research, Inc. provided this graph.

Dividend growing stocks have outperformed over time...

Please see Fenimore disclosure.

British Independence: Monumental — Not “Mayday!”

Drew Wilson

Drew P. Wilson, CFA
Investment Research Analyst

On June 23, 2016, in a referendum regarding the country’s membership in the European Union (EU), the United Kingdom (UK) electorate voted to withdraw. The precise process and timing for the UK’s withdrawal is unclear, but it’s expected to take up to two years. Make no mistake, this is a significant geopolitical event and it will affect the global economy to some degree. But, because it is unprecedented and — until recently — was deemed farfetched, experts of all persuasions lack conviction about what’s going to happen in the near- to medium-term. We have no special insights here. What we have been doing, though, is reviewing each holding to ensure we understand any embedded risks and looking for new opportunities in the wake of Brexit.

The immediate reaction in U.S. equity markets was pretty “efficient” in that companies with direct exposure to the UK and Eurozone were hit hardest followed by those with indirect exposure. Businesses with little or no exposure were affected the least. This is in contrast to some geopolitical events of recent years that caused more indiscriminant selling and wholesale “risk-on/risk-off” moves. Sales growth for companies selling into the UK and EU will likely slow and the impact of the stronger dollar will further weigh on revenues. Long term, however, we don’t think Brexit and its secondary effects will diminish the values of the businesses in which we are invested.

Tactically, Fenimore is examining potential first- and second-order effects in looking at risks and opportunities for the long term. For example:

  • First-Order Effects: The potential impact on holdings with direct exposure to the UK and Europe.
  • Second-Order Effects: The potential for a prolonged low U.S. interest rate environment and the influence on Financials and their growth rates. Or, opportunities for businesses to take advantage of weakened foreign currencies to acquire assets.

Around Fenimore, we have received few if any panicked calls. Despite some frightening headlines, our investors are once again proving a patient temperament and long-term perspective, both of which are crucial to preserving and building real wealth. They understand that there will always be uncertainty in the global investment landscape. The key is to have an investment plan, remain calm, and not get tempted to engage in performance-diminishing behaviors.

Is this a material event? Yes. Is it cause for panic? No. Will the stock market be volatile over the short term with stock prices dropping despite a company’s intrinsic value? Probably. Will more buying opportunities present themselves? Hopefully.

Please see Fenimore disclosure.

Brexit & The Value of Patience

FlagWith the British vote to exit the European Union (Brexit) now complete, there are many questions but no definitive answers just yet. We are analyzing the situation and monitoring our holdings closely, as always. Fenimore, the investment advisor to FAM Funds, has a long history of money management through multiple economic and financial market cycles — and geopolitical events.

We’d like to reiterate that we view stocks as an ownership stake in a business rather than a means to speculate on geopolitical outcomes, macroeconomic dynamics, or money flows between capital markets. Fenimore believes the best way to preserve and grow capital is to invest in companies with: competitive advantages, pristine balance sheets, sustainable high returns on invested capital, adept leadership, and reasonable growth prospects.

With Brexit, now may be a good time to read the attached timeless paper on “The Value of Patience.” It examines two prominent, return-diminishing investment behaviors: Market Timing and Performance Chasing. FAM Funds Value Of Patience PDF Download.

If you know your course, it’s important to consider staying the course. From our Chief Investment Officer John Fox to our investor services professionals, we are accessible if you’d like to stop by or speak on the phone.

Please see Fenimore disclosure. 

Can’t see the Forest for the Trees

Hills_BlueSkyOne of your goals as an investor is probably to accumulate enough money to pay for a comfortable retirement. But if you focus on short-term investment performance, you may lose track of the big picture and that has the potential to work against you.

Chasing Performance & Market Timing
Your investment plan gives you the freedom to make your own decisions. Since you can easily change your choices, you may find yourself becoming a performance chaser. That’s an investor who changes investments frequently because of daily market movements instead of focusing on the big picture — a long-term investment approach. But “chasing returns” by moving your money into whatever investment strategy or stock market sector happens to be doing well at the time rarely pays off in the long term.

The reason an investor would even want to try to time the market is to accomplish dual goals: preserve capital and achieve outsized returns. Moreover, the investment environment not only validates market timing, but leads investors to believe that they can and should be doing it. Additionally, investment newsletters tell subscribers when to “get in” and “get out” of stocks, bonds, and other assets. Yet financial markets are inherently unpredictable and there is overwhelming evidence that not only does market timing not work, but it diminishes long-term returns. Data shows that long-term investing, even through a stock market downturn, yields better results over the years than trying to time a decline, park capital on the sidelines, and return when “things are better.”

The Inscrutable Future
The problem with chasing returns or market timing is that it’s virtually impossible to predict how long a particular investment strategy or market sector will continue to be a top performer. Eventually, another strategy or sector will probably be in more favor, and there will be little or no advance warning to such a change in the markets. That can leave you in an unfavorable position if you changed your investments based strictly on recent performance or invested in a speculative sector of the market.

The Solution: Keep a Long-term Perspective
You may be in better financial stability by the time you retire, for example, if you use a big-picture perspective when you invest. Concentrate on your goal and have an investment plan with the potential to help you reach it. The idea behind big-picture investing is to choose an approach that offers you a realistic opportunity to achieve long-term gains with a level of risk that best suits you.

After you’ve created a plan and chosen your investments, you shouldn’t ignore market and economic developments. But you’ll generally want to stay with your plan unless you decide that changes in your personal situation or risk tolerance make an adjustment appropriate.

If you’re a big-picture investor, you can be much less concerned with what the markets do on a day-to-day basis. You won’t feel compelled to make a move every time the market fluctuates. Ultimately, long-term wealth building requires discipline and an ability to remain steadfast so that self-defeating behaviors are avoided. It’s our observation that, over time, stock prices should follow the earnings growth of businesses, regardless of inevitable short-term market fluctuations.

Please see Fenimore disclosure.