Market Risk: Fenimore defines risk as permanent loss of capital, not price volatility — price volatility provides discounted opportunities.
—Quality: Invest in high-quality businesses with conservative capital structures and proven leadership.
—Valuation: Invest when stock price is at a considerable discount to our assessment of intrinsic value in order to create a margin of safety.
Financial Risk: Limit our holdings to quality businesses with sound balance sheets, high profitability (high ROE/ROIC and profit margins), strong free cash flow generation, and manageable debt.
—Active Management: Continually monitor appropriate measures such as P/E, P/B, P/CF, ROE/ROIC, Total Debt/Equity, and EBITDA Margin applicable to each business.
Operational Risk: Focus on adept leaders with a history of creating shareholder value and frequent contact with management helps reduce negative surprises.
—Transparency: Invest in American companies with appropriate global revenue to capture upside potential of international markets while having access to management.