Market Commentary

by Andrew F. Boord

The U.S. stock market, as measured by the S&P 500 Index, increased for
the fourth year in a row as of year-end 2012 and last year was very good
for equity investors. The New Year began with the market experiencing a
bounce from the fiscal cliff resolution. Investors continue to look at macro
level forces to decide how they should feel about equities on any given day.
These “big picture” forces have been the main driver of the market recently.
While we study issues at this high level, we believe that the company-level
information we unearth is best for making investment decisions.

Macro View
America’s economy continues its slow recovery from the financial crisis with
housing, auto sales, and unemployment all improving. Yet, despite the good
news, people tend to focus on the news headlines. It seems as if every time we
move forward, there are more dire, political negotiations including the latest
debt-ceiling talks. While our memories may mislead us, the reality is that
the future is never certain and anyone who listens to prognosticators sets
themself up for disappointment.

Micro View
We spend most of our time examining the inner workings of companies so
we can make educated decisions. Our recent discussions with the managers
of companies in which we invest suggest that virtually all are expecting
modest, but solid growth in 2013. They also have strong free cash flow
generation and can use it to expand operations, make acquisitions, pay
dividends, and repurchase stock. This ability to turn cash profits into higher
growth and business value per share, even in the absence of a very strong
macro economy, is an important source of return for stockholders.

In 2013 we will continue to diligently study and adapt as needed, but in
general we will focus on investing in what we believe to be great companies
that can do well under a wide variety of scenarios. This way, we think we
have a higher probability for success over the long term. At FAM Funds, we
believe that building wealth is like running a multi-year marathon — not a
series of sprints.

Please see Fenimore disclosure.