by John Fox, CEO & Chief Investment Officer
As we try to absorb and process the rapid-fire, constantly evolving headlines and adapt to our temporary, yet far-ranging, lifestyle changes, I think it’s important — and, hopefully, reassuring — for you to know that Fenimore is not deviating from our time-tested, long-term investment model.
We continue to maintain our keen focus on a select group of quality companies that we know and understand well, and to analyze closely how their operations specifically are being impacted by what’s happening in our global economy. The big picture is, of course, relevant and part of our analysis, but what’s truly important is what’s happening at the businesses in which we invest.
Here’s a look at what’s reinforcing our ironclad commitment to our investment approach:
A Historical Perspective on Pandemics
After reading a March 22 Wall Street Journal article about the 1957 Asian flu and 2003 SARS pandemics, I researched some economic data and found the following:
- There was a sharp drop in gross domestic product (GDP) during the previous outbreaks, and the unemployment rate approximately doubled.
- The economic effects lasted months – not years – and stock prices increased over the ensuing two years.
While the COVID-19 crisis could have greater impact due to today’s global economy, the bottom line is we are confident that America will get through this challenging time just as we have before.
Fenimore’s research analysts are speaking regularly with the management teams of our holdings.
- The discussions reaffirm our belief in the potential of these businesses.
- Our holdings are adapting to — and some are directly participating in — this “war” against the virus.
Fenimore Does its Homework
These conversations with the leadership of our holdings have always been essential to our in-depth research. Our analysts study businesses exhaustively — both those Fenimore currently has ownership in and those we believe could offer new opportunities — as we seek to protect and grow your capital over the long term.
- The investment research team builds our own financial models on each company and analyzes their income statement, balance sheet, and cash flow. We run projections of recession scenarios and calculate the amount of cash each business generates.
- This proprietary research provides information and clarity quickly and helps us make educated decisions.
- Fenimore’s analysts work together in a collegiate atmosphere with a free exchange of insights and ideas to ensure that we are bringing all of our considerable experience to bear on our investment decisions.
Volatility Provides Opportunity
Fenimore defines risk as permanent loss of capital, not week-to-week or even day-to-day stock market volatility. To us, volatility provides opportunity to invest in quality businesses.
- Your Fenimore research team has been increasing ownership in existing holdings and investing in new firms at what we estimate are considerable discounts. We believe these are quality companies with world-class returns on invested capital, recurring revenue, and significant free cash flow generation.
- Our analysts have followed some of these new additions for years, but the stock prices were not right in our view – until now. In our experience, the right purchase price is vital to creating long-term wealth.
Just as Fenimore’s investment approach is steadfast, so is our team and their commitment to excellent service. Our associates are ready and available to speak with you. Please call (800) 721-5391 if we can be of assistance.