1. Andrew Boord, Research Analyst April 22, 2009 Value Investing Basics Fenimore Asset Management, Inc. 384 N. Grand St., PO Box 310, Cobleskill, NY 12043 – 800.721.5391 – www.fenimoreasset.com

2. 2 Fenimore Asset Management, Inc.  Located in Cobleskill, NY  33-year history of money management  $1+ Billion of Assets Under Management  Separate accounts and two mutual funds  “Value” Investing in high-quality companies  About 50 - 60 investments among 4 analysts

3. 3 What Is Value Investing?  Thoughtful, Disciplined and Patient  Preservation of Capital – First Priority  Invest in Businesses, Not Stocks  Bottom-up, Rigorous Fundamental Research

4. 4 Investment Selection Criteria – Part 1  High Quality Businesses Understandable Sustainable competitive advantage(s) – Moat Will prosper long-term, regardless of economic cycles in the mean time  Solid Financial Condition Low debt Strong free cash flow:

5. 5 Investment Selection Criteria – Part 2  Superior Management Honest and forthright Understands return on invested capital Strong track record of creating economic value (not building an empire)  Attractive Valuation Reasonable multiple of “owner’s earnings” Relevant Historical Multiples (e.g., earnings, book value, sales, reserves, etc.) Acquisition multiples of competitors Calculate an internal rate of return (min. of 12%-15%) based on 5-year projections and a modest terminal value

6. 6 High Quality Business  First, Find Them Screens Conferences Media Other investors  Read, Read, Read  Study Competitors, Customers, Suppliers, etc.  Interview Management – Phone and Visits  Look at the Numbers – Build Detailed Models ROIC Margins Cash generation

7. 7 Superior Management  Hardest Piece of the Puzzle  Read, Read, Read – letters & interviews  Face to Face Meetings  Look for Independent Thinkers (a.k.a. Curmudgeons) Often the founder Annoyed by Wall Street Frugal Don’t follow the herd  Avoid the Pretenders Beat out 8000 other bureaucrats to reach the top Spin or Ignore all bad news Play to Wall Street Excessive pay

8. 8 Financial Condition  Key is Surviving the “Once in a Lifetime” Economic Shocks Asian crisis (ocean freighters) Russian debt default and LTCM lock up (CMBS REIT’s) Tech stock bubble meltdown (100’s of companies) 2001 recession (airfreight carriers) 9/11 (airlines, hotels) Hurricane Katrina (catastrophe reinsurers) Credit Crisis (banks, non-bank financials, anyone with a material debt load)  No Debt is Safest  If There is Any Question, Then It is Not Strong Enough

9. 9 Attractive Valuation  “ Margin of Safety”  Should Be Cheap – No Matter the Valuation Method  Relative Valuations are Dangerous Many tech stocks were cheaper than their peers in 1999 and lost 90%+ of their value  “Fearful When Others are Greedy and Greedy When Others are Fearful”

10. 10 What Is Risk?  Risk is Loosing Money Dishonest management Commodity business (i.e., no moat) Not able to survive the “Once in a Lifetime Economic Shock” Significantly Overvalued stock  Risk is Not Beta Relative index weightings (a.k.a. “tracking error” or “sticking out from the crowd”)

11. 11 What We Don’t Do  Focus on the stock market  Depend on accurate macroeconomic predictions  Structure portfolios relative to an index  Allow short-term company events to drive our actions  Sell a stock due to increased market capitalization, P/E, etc.  Use Wall Street recommendations  Apply quantitative modeling, momentum investing, or relative value techniques  Operate a star system

12. 12 Other Keys  Macro-Based Investing is Dangerous “Macro economists make astrologers look good” “Invest as the world is, not as you think it should be”  Technical Analysis is Voodoo  Intelligence Important, but TEMPERAMENT is Key  Transaction Costs Destroy Returns  Accounting Does Not Always Equal Economic Reality  Circle of Competence – You Don’t Have to Know Everything  Create your own competitive advantages  Good partners are important

13. 13 Summary  Buy Great Companies with Wonderful Management When They are Cheap  “Fearful When Others are Greedy and Greedy When Others are Fearful”  Build, and then Stay, Within a Circle of Competence