Long-Term Investing: A Bright Idea

Tom Putnam Introduction – Annual Shareholder Informational Meetings

“Long-Term Investing: A Bright Idea” was the theme of FAM Funds’ 25th Annual Shareholder Informational Meetings held on Tuesday, October 11th. The morning meeting took place at the Albany Marriott and the afternoon gathering was at the Cobleskill-Richmondville High School. Both meetings followed the same format with David Pollitzer, President of Fenimore Asset Management (Fenimore is the investment advisor to FAM Funds), welcoming attendees and opening with a customary prayer. He also introduced the Funds’ Independent Trustees and then Fenimore Chairman Tom Putnam took the stage.

Tom began, “I’d like to say a few words about a special place that’s in my heart and that’s the Schoharie Valley.” Tom told how Hurricane Irene flooded the towns and villages in the valley, including the Village of Schoharie where he lives, and all along the Mohawk River into the Stockade area of Schenectady. “Many people were affected. In the Village of Schoharie alone, there are more than 300 residents displaced and living elsewhere.”

Tom went on to say that it will take awhile to recover, but at the same time there is much hope. Hope that thousands of volunteers helped instill as they assisted people in their homes and businesses. Knowing that many attendees had been a part of the flood relief effort Tom said, “I’d like to thank you for your help, prayers, and concerns. Despite the devastation, the people of Schoharie Valley are resilient. They will rise again and it will be an even better place to live.”

He then turned on an LED flashlight that attendees received. “This light symbolizes hope for the flood survivors as well as another topic that is near to my heart and that is long-term investing. Since 1974, we’ve been following a long-term investment approach that we call value investing as we seek to protect and grow your wealth over the long run. Just as we did when we opened our doors, we still believe that long-term investing is a bright idea.” Tom stated that there is an overwhelming amount of independent research showing that long-term investing – even through a stock market downturn – yields better results over the years than trying to time a decline, remove capital and return when “things are better.”

Tom then focused on 1973 and 1974 when he founded Fenimore indicating that it was a similar – yet different – time. The market declined 50% just as it did in 2008. After that time in the ‘70s, there “was a long period of high unemployment, scarce job opportunities, and slow growth.” Even though we have these same conditions today, the environments are dissimilar because we don’t have the same alternatives as we did back then. Tom said, “Inflation increased to double-digits and because of that, interest rates went sky high and bonds were yielding double-digits by 1980. We don’t have that alternative today.” Currently, interest rates are low and bond returns are rather meager.

“However, even if you invested during what seemed to be the worst time in 1974, how would you have performed in the stock market? The Dow Jones Industrial Average was 550 and today it’s 11,000. That’s about a 20-fold gain,” Tom stated. Many investors significantly underperform the overall market because they let their emotions get in the way of rational decision making. Investors chase the latest fads, or have fear and sell when it’s time to buy, with the typical result being that they miss the upswings and their gains are much less than what they would have been if they had just stayed the course. “Trying to time the market just does not work.”

Tom continued that some people have a misperception about long-term investing. They call it “buy-and-hold” investing with the assumption that the investor buys the stock and then never looks at it again. At Fenimore, we call it “buy-and-monitor” investing. We proactively and vigilantly analyze a stock after we purchase it to make sure it continues to meet our criteria and growth projections. “As long as it does, there is no reason to sell it unless we have a better prospect. And in today’s marketplace, we have been given opportunities to invest in some better prospects.”

He then referenced the great examples of companies that we have held in the Funds for several years that were on display. Quality businesses that continue to create economic value, continue to grow their cash flows, and continue to show profits.

Tom concluded, “In the short term, even in an economy that is experiencing slower growth, we still believe we are in an advantageous position. Our Research Team continually works diligently to gather and analyze vast amounts of information to ensure that we are invested in the strongest companies. We like businesses with strong cash flows, global exposure, quality leadership, and little if any debt. In the long term we are still bullish about stocks and FAM Funds, and believe that they are the best-positioned asset class to outpace inflation and generate wealth over the long haul.”

Please see Fenimore disclosure.