Earnings season is probably a term you have heard before. It is a four-to six-week period occurring four times a year when publicly-traded companies release their quarterly earnings. There are roughly 5,000 publicly-traded American corporations so it can be a rather hectic time in the investment world. For some investment managers, earnings season is the main event when the majority of their investment decisions are made so earnings reports often play a significant role in the performance of company stocks. At Fenimore Asset Management, the investment advisor to FAM Funds, it is a crucial time, but it is just the beginning — we compete year-round for you.
The earnings season for the fourth quarter of 2012 is in full swing. Wall Street is at its peak of activity as financial analysts and reporters scour the data. Ultimately, the “top” analysts that follow a specific U.S. company will hold, upgrade or downgrade their outlook for the business. Almost immediately, institutional and individual investors will join the herd and invest or divest according to what Wall Street has to say about the stock. While some of this information can be valuable, we rely on our own independent, in-house research. In fact, Wall Street analysts typically do not follow many of the small- to mid-sized businesses in which we invest. This means less competition and more pricing inefficiencies that provide opportunities to find value and greater potential returns for you, our shareholders.
Fenimore’s Investment Research Analysts participate in numerous earnings calls and update many valuation models (our estimate of a company’s economic worth) every quarter. Additionally, our investment approach includes: analyzing financial statements; meeting with management; speaking with suppliers, customers, and competitors; monitoring the potential business impact of macroeconomic events; and sifting ideas through our four core filters (quality business, financially durable, proven management, and margin of safety).
This time-tested process requires that our team constantly do its homework. In 2012, we spoke with, met with the management teams of, and conducted site visits at more than 100 corporations — both existing investments and new ideas from a wide range of industries. We continually seek high-quality businesses to add to our holdings and believe that the FAM Funds are positioned well for future returns. For us, investment research is a perpetual season that keeps us on the field at all times.