Letter From Cobleskill – Fall

By Tom Putnam

Back-to-school time is a slice of Americana. Even though my wife Dusty and I are empty nesters, each September I am reminded of the days when we saw our children off to school with new beginnings at the doorstep. The blessing of having grandchildren also ensures that this time of year will continue to signify a fresh start for us. While there are changes in the lives of students and parents, the investment world has been rather uneventful since our last communication. During this time, however, we’ve received many questions from shareholders. In keeping with the academic spirit, I’d like to answer a few of those shared inquiries.

Q: With the stock market reaching all-time highs, are you worried that FAM Funds’ prices will drop? What should I do with my mutual fund shares?

A: We’ve been asked these questions numerous times over the years and yet the market continues to hit higher peaks along the way while also experiencing valleys of various depths. That’s just the nature of the stock market and investing. We recommend that if you don’t need the money, then stay the course. There is an overwhelming amount of research that shows 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.” In fact, studies of recent 20-year periods demonstrate that missing just 10 of the best days in the stock market during two decades can dramatically affect an investor’s rate of return.

Q: How much longer can this Bull Market last? Should I invest right now?

A: I’ve never met anyone who could tell me when a Bull Market would start or stop running. No one can time the market over the long haul. While long-term investors are steady, market timers sweat over when is the best time to get in or out of the market. As emphasized in the previous answer, time in the market — not market timing — is the better approach.

Also, if you have the money, the best time to invest is today. Dollar-cost averaging (DCA) is a long-term strategy that can help you avoid trying to time the market by investing a fixed-dollar amount on a regular schedule. Since you always invest the same amount in one of the FAM Funds, for example, 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. 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 DCA 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. Of course, you must consider your financial ability to continually purchase shares. As with all investment methods, there is no performance guarantee.

Q: With the S&P 500 Index exceeding 2,000 for the first time, are you being more critical with your investment selection process?

A: The investment selection process is always critical — it’s the cornerstone of our business. We see stocks as economic interests in actual companies and follow a consistent, time-tested investment process that involves extensive research and diligent portfolio management. It includes: visiting corporations; creating detailed valuation models for each holding; analyzing financial statements; meeting with management and participating in quarterly conference calls; speaking with suppliers, customers, and competitors; monitoring the potential business impact of macroeconomic events; and sifting new investment ideas through our filters.

One key aspect of FAM Funds’ investment style to keep in mind is that we analyze small- and mid-cap companies, not the large S&P 500 corporations. These smaller businesses don’t receive as much scrutiny from Wall Street and mainstream investors. As a result, there are always pricing inefficiencies in these spaces — even during market upswings. Our analysts constantly troll for enterprises that meet our exacting criteria and whose stocks we can purchase at fair prices.

Simultaneously, we always monitor the valuation levels of holdings in the funds. When an analyst estimates that a stock is overvalued, the position will be trimmed or sold with profits being reinvested in more reasonably-priced securities, both existing and new, that are appraised to have a longer runway for growth. Our Research Team works perpetually for you regardless of the environment.

The Unspoken Question

“What am I up against?” Although it is often internalized, every investor asks this question at some point in the decision making process. For individual investors, it can be very confusing and complex — perhaps even more so today than at any time in history. Today’s geopolitical concerns alone create a global atmosphere of anxiety. Combine those fears with the daily, hourly, and even minute-by-minute bombardment of opinions from the financial media and it’s no wonder investors face strong headwinds that hinder objective and rational decisions.

I encourage you to set reasonable, achievable goals and focus on your long-term investment horizon while tuning out the noise. In the meantime, we’ll keep doing all the homework. If you have any questions or ever feel a bit anxious about your investments, please contact us at 800-932-3271. Thank you for your ongoing trust in us.

Please see Fenimore disclosure.