FAM Funds
Fenimore Private Client Group
Investment Advisors
About Fenimore

Investment Advisors

 

Investment Approach

Investment Process

Fenimore’s time-tested, disciplined, repeatable investment process involves intensive research and active monitoring of securities held. Our proprietary research process incorporates: creating and maintaining detailed models for each company we follow; 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 our investment ideas through the filters of our core investment criteria. 

Fenimore Filters: Four Core Investment Criteria

1. Quality Business

  • Understandable business model
  • Sustainable competitive advantages
  • High market share or industry leadership
  • Favorable long-term outlook

2. Financially Durable

  • Strong free cash flow generation
  • Low leverage and high coverage ratios
  • High returns on invested capital
  • Strong operating and profit margins

3. Proven Management

  • History of creating shareholder value
  • Astute capital allocation
  • Adept leadership
  • Honest, ethical, and experienced

4. Margin of Safety

  • Buy at a discount to our estimate of intrinsic value
  • Minimize effects of errors on long-term returns
  • Aim to maximize total return    
  • Reassess analyses and valuations continually

Buy Price Determination
(for individual securities)

  • Determine if a 10% to 12% annualized return rate can be achieved over five to six years
  • Discount expected future cash flows to determine present value
  • Apply a “worst-case” value baseline of no growth and discount at least 10%
  • Check against historical average multiples (price/earnings, price/cash flow, price/sales, price/book)

Sell Discipline
(for individual securities)

  • Valuation reaches a level where expected returns fall below the risk-free rate of return 
  • Economics of the business are deteriorating or competitive dynamics are changing
  • Investment no longer meets our criteria
  • Better risk/reward opportunities exist


 


 

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FAM Funds: Investment Approach Process - Investment Advisors
Our consistent and time-tested investment process involves extensive research, ensuring that companies meet our Four Core Investment Criteria.