Letter From Cobleskill – Spring

by Tom Putnam

I am an avid reader. I enjoy perusing books and newspapers, but I mostly read vast amounts of investment research. A good movie can interest me as well, but I am not a big fan of television. Maybe it is because for part of my life there were only a handful of channels. It was an adventure just to change the station and adjust the signal with our flimsy “rabbit ears” antenna, and decent picture quality was a moving target. Today, there are hundreds of channels with crystal-clear reception; however, the programming is often not as sharp as the picture. This includes some of the 24/7 cable financial news shows which, I believe, can cause investors to get sidetracked at times.

Many financial pundits cast their opinions with certainty, and yet they are typically speculating. These commentators will guess what the stock market will do next, predict what will happen globally, amplify macro events, and tell you when to buy and sell investments. Of course, they each have their own slant on topics. Multiply these conflicting viewpoints by thousands online and you can easily get whipped into a tizzy and lose focus of your long-term financial goals.

Steady Investing in an Ever-Changing World

We always welcome your calls, especially when you may feel a bit nervous. Our team is here to help you maintain a rational, long-term outlook. Recently, we have heard questions like, “Have I missed the stock market rise? Am I too late to add money or open a new account?” Others have asked, “Will we see a major pullback soon?” While there are numerous different speculative answers to these questions, there is one concrete investment practice that many find agreeable – dollar-cost averaging (DCA). DCA takes the guesswork out of investing.

If you contribute methodically through a payroll deduction into your 401(k) or 403(b)(7), you are already implementing this practice. DCA is a long-term strategy that involves investing a fixed-dollar amount into your FAM Funds mutual fund (for example) at regular intervals. Since you always invest the same amount, you will purchase more shares when the price is low and fewer shares when the price is high. DCA’s premise is that your average cost per share may be less than your average price per share, thus reducing your investment risk over an extended time.

Instead of investing a lump sum, the idea is to average out the highs and lows to help you avoid trying to determine the right time to invest. It also allows for smaller investments that, when done consistently over time, can grow into a considerable savings. It takes advantage of the cyclical nature of the stock market and allows you to focus on long-term growth and ignore short-term market conditions. While this technique does not eliminate the possibility of losing money on an investment, losses may be lowered during periods of declining share prices and profits may be enhanced when prices rise over time.

When you need the money, DCA is also an efficient way to withdraw funds. The advantages are similar to when you were investing because money is withdrawn automatically regardless of share prices – you do not have to concern yourself with fluctuations.

More than 100 years of stock market history highlights the fact that rallies occur when investors least expect them. Trying to time the market simply does not work over the long haul. It is important to remain patient and calm when attempting to grow your assets − and dollar-cost averaging can help.

People often look back and believe that events were predictable. While our memories may mislead us, the truth is that the future is never certain. The world is ever-changing and I would be leery of anyone who presumes to postulate with certainty. At FAM Funds we are not in the business of speculating. What I can tell you with assurance is that we will continue to seek to purchase shares of stock in high-quality, durable businesses at attractive prices to outpace inflation and build real, long-term wealth.

Many of you have been with us for a long period of time and understand the importance of steady investing, including those of you who became shareholders in 1987 when we launched the FAM Value Fund. We appreciate your support of the Value Fund as well as the FAM Equity-Income and FAM Small Cap Funds. As of its two-year anniversary on March 1st, the Small Cap Fund already had more than $50 million in assets. As always, we encourage you to please contact us with any questions or concerns. On behalf of our team, I thank you for your ongoing trust.

Please see Fenimore disclosure.