Managing risk is crucial to an effective long-term approach. Many may seem adept at managing money when the market is rising, but fail to have a solid game plan for withstanding and ultimately taking advantage of downturns. Our research efforts enable us to intimately know the businesses behind the stocks we hold, and give us the confidence to maintain, and even increase, our shares in these enduring corporations when the market drops. Furthering this confidence is our process of building relationships and understanding the thought processes of our portfolio companies’ management teams.
- Fenimore defines risk as permanent loss of capital – not price volatility
- Price volatility provides us with the opportunity to invest in great businesses at a discount to our estimate of their intrinsic value
- Limit our holdings to quality businesses with strong balance sheets or little financial risk
- Focus on adept leaders and frequent contact with management helps reduce negative surprises