by John Fox, CEO & Chief Investment Officer
With the earnings report period that encompassed most of what we hope was the peak of the COVID-19 crisis, approximately 80% of company results exceeded Wall Street estimates. While companies often do better than analysts expect, the magnitude of this surprise was greater than in previous quarters. Due to the government mandated shutdown, analysts had forecasted very poor results; however, many large businesses were able to adapt and provide better-than-expected results.
Technology had a particularly strong quarter driven by countless Americans working from home. Many consumer-oriented businesses also reimagined themselves and successfully shifted a greater portion of their customer interactions online when brick-and-mortar operations became impossible.
With earnings season behind us, we are focusing on four key areas to monitor the health of the economy and our holdings:
- Coronavirus: As one of our research analysts remarked last week, “The virus is still in charge.” Positive test rates were declining in May and early June before climbing upward again as many states relaxed their mobility restrictions. Fortunately, the number of cases and the positive rate appear to have peaked during the second week of July and have been trending downward. Of course, to have a full economic recovery, people need to feel safe going to restaurants, entertainment events, gyms, and other activities. Only time will tell when that confidence is fully restored.
- Real-Time Economic Data: We continue to monitor real-time economic data for signs of newfound consumer confidence. Examples include the number of airport travelers, online applications for state unemployment insurance, hotel reservations, and the use of online driving directions. We believe economic activity bottomed in April and has been slowly increasing, with the economy now at about two-thirds of its pre-virus level.
- Firsthand Conversations with Management: Talking directly with the leadership of our holdings, and those of potential interest, is key to Fenimore’s investment research. As we have these conversations, we listen intently for their descriptions of the pace or cadence of business. Currently, many firms are disclosing the pace of their monthly sales. What we are hearing closely tracks what we are seeing in the real-time data — a trough of activity in April with slow improvement since then. August seems to be shaping up positively like July.
- Financial Strength of Businesses: We continue to be sensitive to the financial strength of all our investments. Our analysts carefully watch cash balances, debt levels, debt maturities, and the amount of cash profits generated each quarter as we continuously seek to optimize the overall quality of holdings within portfolios.
As we head into the final months of this unforgettable year, Fenimore continues to watch closely the data resulting from COVID-19. Simultaneously, as always, the bulk of our time and attention is focused on the select group of businesses in which we invest and their long-term outlook.
If you have questions about your investments, please do not hesitate to call us at 800-721-5391. Or, if you prefer to connect via Zoom, please let us know.
We thank you for your confidence in our team. Best wishes for a safe and enjoyable Labor Day!
 FactSet as of 8/21/2020
 The COVID Tracking Project, covidtracking.com, as of 8/21/2020