This is my favorite time of year – not only because of the foliage and the seasonal bustle of “back to work,” but also because Fenimore hosts our two best events all year.

September 25th we hosted our 17th Annual FAM 5K “Fund” Run/Walk. It was a beautiful autumn day at the Cobleskill Fairgrounds. The 725 finishers and almost 200 volunteers were joined by friends and family to enjoy Chuckles the Clown, Jim Snack a magician, several community booths, and the quintessential fundraiser Brooks’ BBQ. We donated $20,000 to Habitat for Humanity this year due to generous support from our local businesses, vendors, and participants. Check it out at fam5k.com.

October 12th marked our second great fall event – the 24th Annual FAM Funds Shareholder Informational Meetings. We had hundreds of neighbors in the region come to learn about the FAM Value and FAM Equity-Income Funds directly from our research analysts. The morning meeting was held at the Albany Marriott and the afternoon gathering was at Cobleskill-Richmondville High School. In keeping with our contrarian investment approach, there was limited presentation. Instead, the Funds’ managers - Tom Putnam, John Fox, Paul Hogan - as well as the rest of the Research Team, spent the bulk of the meetings in audience Q&A.

Some highlights include:

• A perspective on equity-investing looking at the past, present and future.
• A review of an actual college savings account and the key to saving for college.
• Updates on the FAM Value and FAM Equity-Income Funds.
• Four companies, that are investment holdings in FAM Funds, were on display.

Visit FAM Funds' Annual Shareholder Informational Meetings recap.

Despite popular opinion, buy-and-hold investing is not dead! This is difficult to discern when the noise in the industry tells you to reconsider your strategies due to the losses investors sustained in 2008 to 2009. After every severe downturn traditional investment approaches such as buy-and-hold become passé, yet results show that it stands the test of time.

Buy-and-hold is a proactive investment approach that requires appropriate research, patience, and an intimate knowledge of the business underlying the stock. When properly implemented, you can benefit from holding stock in a financially sound company whose economic value is increasing over the long term. The numbers behind this reasoning show that a business may grow on a company’s balance sheet, but the value might not be reflected in the stock price in the short term. This may be due to the business’ stock being out of favor because of Wall Street pessimism and/or frustration with the economic state of affairs – very similar to what we are observing today.

How can financially strong companies perform above average even in poor economic periods? A company that generates free cash flow can increase shareholder value in slow economic environments through the wise use of its cash reserves. It can use that cash to expand the business by investing in its products and services, reduce debt, pay dividends, or repurchase its stock. All of these actions can increase the stock’s value even if the economy idles.

Consider one of Fenimore’s holdings, John Wiley & Sons – a book publisher. We first purchased John Wiley in the summer of 2002 at a price of approximately $24 per share. Perennially, management tells investors to expect sales to grow in the mid-single digits – certainly not astounding growth. But Wiley generated large amounts of cash which it used to make two significant acquisitions, repurchase stock, and increase its dividend annually. As a result of these actions, Wiley returned roughly 7.3% (share appreciation and dividends) annualized from our original purchase. Comparatively, the S&P 500 Index returned an annualized 2.5% while real GDP experienced annualized growth of just 1.7% during the same eight year period from the summer of 2002 to 2010.

We hope that you will continue to evaluate your investment strategies diligently and turn to us to help you objectively review your total financial picture at least annually. Fenimore’s advice is to know what you own and stick to a sound, well thought out investment plan that includes stocks of good businesses with long-term growth potential. Make sure you use buy-and-hold as part of your strategy because it endures economic cycles (it also promotes tax efficiency – a topic for another financial tip).

We often hear, “Don’t put all of your eggs in one basket – diversify!” But what does diversify really mean? Unfortunately the topic is vast and can be quite ambiguous because of its many definitions and interpretations. At Fenimore, we seek to build a diversified portfolio of various, well-managed, financially stable, and enduring businesses.

In general, diversification is a risk management technique that combines a wide variety of investments within a portfolio – such as stocks, bonds, and real estate – which are unlikely to all move in the same direction. Regardless of how you define diversification, the goal is to intelligently hold different investments that provide you with the potential for good returns based upon your risk tolerance.

Diversification Components
Number of Holdings
According to academic research in the field of finance, to achieve effective diversification a portfolio should hold at least 12 stocks. Fenimore typically invests in 20 to 25 stocks within a portfolio offering even more diversity.

Within Asset Categories
Fenimore’s portfolios are structured across various market sectors. Our stocks complement each other and this allows the portfolio to perform in different cycles. For example, because a manufacturer operates differently from a bank, these stocks can perform uniquely and at separate times. Additionally, we have found that there is less risk investing in American companies that have significant revenues derived offshore as compared to investing directly in foreign businesses.

The Fenimore Factor
Fenimore doesn’t define risk as market volatility like many people do. We define risk as permanent loss of capital. That is why we perform our own in-house investment research. Our Research Analysts conduct extensive, original, independent research and visit with every company we own at least annually. We stick to a proven strategy of buying stocks in high quality, undervalued companies that demonstrate promising long-term growth potential. One of our four core criteria is investing in businesses we can buy at a discount to our estimate of intrinsic value – this is our margin of safety and another method used to protect your assets.

What to Do
It is erroneous to approach asset allocation with a “one size fits all” technique no matter what the investment community might tout. The truth is that it all comes down to your comfort level and goals. As every investor’s situation is unique, we invite you to give us a call to discuss your financial situation.

If you dropped an egg in the kitchen, you’d feel much better that it was just one and not an entire basket. Likewise, nothing is certain in the financial realm – so be safe and not sorry.

As the May flowers bloom Upstate, our thoughts turn to our mothers. And what a wonderful day we mark on the calendar to celebrate those special women in our lives! However, as many Hallmark greetings note, it should not just be this time of year that we lift up and cherish these role models – we should do it daily.

Just as we remember who impacts us, it’s also good to be mindful of what impacts us both now and in the future. Investing is a core aspect of our lives that has a significant influence! Yet too often we remember to demonstrate our love for others, but we forget that it’s okay to think of ourselves as well.

There is a simple investment strategy that can be a regular expression of care for yourself and others. It’s called dollar-cost averaging (DCA). DCA is a strategy that involves investing a fixed dollar amount into your mutual fund 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. It allows you to focus on long-term growth and ignore short-term market conditions.* The way I do this is through my FAM Fund account; before I have a chance to think about what dollars come out of my checking account, they’re invested!

Reflecting on Mother’s Day, FAM Funds has a true story we use as an example of DCA and what a considerable difference it can make. FAM Funds’ George Chelius had the idea to show shareholders how DCA could work for them – and him. Seven days after his daughter Anna’s birth, George opened a FAM Value Fund account for her with $2,000. Every month after he added $100 and did so for 18 years. Upon high school graduation, Anna’s account had grown to $89,348.42.

So as we praise our mothers and their care for us this month, consider also putting that gratitude to work for yourself or a loved one with dollar-cost averaging.

* Keep in mind that dollar-cost averaging is a long-term investment philosophy. It takes advantage of the cyclical nature of the market and, in essence, averages the highs and lows as they affect your mutual fund account. Day-to-day market fluctuations become less of a concern when focusing on the long term. An investor must consider their financial ability to continue purchases through periods of low price levels. Also, dollar-cost averaging does not guarantee a profit or protect against a loss in declining markets.



What did we learn from the tumultuous markets and depressed economy? One thing for sure is that it’s important to save for a rainy day. And a good place to start is to maximize your retirement savings. If you have a 401(k) at work or a similar retirement plan, taking advantage of it may be one of the best decisions you ever make - especially if your employer matches your contribution!

Putting retirement savings into your 401(k), a "defined contribution plan," via payroll deposit is easy to do and may have the added benefit of an employer match. That means for each dollar you save, you get more - it’s like “free money!”

There are two key 401(k) advantages you should consider:

1. Because this retirement plan is funded with pre-tax wages, you don't pay taxes on what you save until you make withdrawals. Also, the amount you contribute to the plan is subtracted from your earnings in order to calculate your annual Adjusted Gross Income, therefore reducing your income tax.

2. Try to contribute at least enough to get any matching contribution - this multiplies the money you invest. Also, if you can afford to max out your plan, I highly recommend it.

Please note:

1. Changing jobs? A direct rollover of a 401(k) to a No-Fee FAM Funds Traditional IRA is a nice option because it allows you to avoid both the 10% early distribution penalty and any Federal income tax.

2. FAM Funds may be available through your retirement plan at work. Ask your employer or give us a call.

3. You still have time to contribute to your retirement accounts for 2009 (until April 15, 2010). Do it today!

4. You can convert any Traditional IRA into a No-Fee FAM Funds Roth IRA.

A recent headline, “Will We Ever Again Trust in Wall Street?” reminded me that there is still a lot of investor anxiety in our midst. Perhaps this has to do with fear of the unknown – the complicated investment choices in the market and the mystery of the frenetic activities in lower Manhattan.

Additionally, many investors are trying to understand where to allocate their capital amid the barrage of recommendations from an overwhelming number of sources. Since the market malaise of 2008 - 2009, countless investors have supplanted sound fundamental investment analysis, like we do at Fenimore, with asset allocation. They have the false belief that there is “no risk” with asset allocation because of the way it has been touted.

But instead of diversifying their portfolios - the true intent of asset allocation - many investors let their emotions impede their judgment and continually change their investments based on the sectors of the market that recently performed the best. Unfortunately market timing, or attempting to catch the market at its highest or lowest point hoping to maximize returns, just doesn’t work! Countless research studies have shown that the average investor significantly underperforms the overall market because they let their emotions get in the way of rational decision making. They chase the latest fads with the typical result being that they miss the upswing and their gains are substantially less than what they would have been if they had just stayed the course.

If you’ve followed our previous tips and are saving according to a long-term financial plan you’ve established, then we encourage you to stay the course. A rational perspective and solid investment strategy can provide for years of prosperity. Don’t let the short-term views on Wall Street influence your long-term goals.

Who looks out for you best? Who can prioritize your needs like no other? The obvious answer is you! And wouldn’t you love a few extra dollars to spoil yourself in retirement?

It’s that time of year when we begin to gather our tax documents such as W2s, 1099s, mortgage interest statements, and charitable deductions. Since it’s a great time to review, check and see if you made an IRA contribution – Roth or Traditional – for 2009. For an individual under 50 you can add $5,000 to your retirement savings, or for those 50 and over $6,000, before April 15th.

If you continue to make investments annually, this could have a tremendous impact on your future income. In fact, it’s not too early to contribute for 2010 either. Contributions for 2010 must be made before April 15, 2011 and the limits are the same as 2009.

Even adding just a portion of the contribution limit amount to your retirement today could greatly benefit you tomorrow. Before investing, we always suggest that you have a bit of savings in case of an emergency. Make a plan and save for your golden years now – it may be the best New Year’s resolution you ever make!

Please remember that you can convert any Traditional IRA from another company into a No-Fee FAM Funds Roth IRA.

You may be faced with certain circumstances in 2010 that will change over the years:

• Your ability to contribute to your retirement accounts
• Paying off your mortgage
• Projecting your next promotion or pay raise
• Planning a child’s wedding
• Dealing with the death of a loved one
• Welcoming a grandchild
  

And in the day-to-day we neglect to take the time to think ahead:

• How long will your current vehicle get you to and fro?
• What additional education might you undertake?
• Will your children come to you for short-term funds?
• Will you or your spouse need nursing home care?

In all of your savings projections, it is impossible to predict what lifestyles or circumstances your investments can maintain, unless you take the time to develop a comprehensive plan. Make the hard choices today so that you are prepared for the future. For example, too many investors believed that their dividend yields would continue forever and this simply wasn’t feasible.

Being realistic, with conservative projections, and saving will allow you to meet your financial objectives; as you get closer to the goal, you will have the capability to review and adjust your plan as necessary. The earlier you take control, the more flexibility you’ll have in the future.