Hendershot Investments, Inc., founded in 1994, provides professional investment advisory services. We are devoted to helping you improve your long-term financial success. Our personalized service is designed to grow and conserve your wealth by investing in high-quality, well-managed companies. Hendershot Investments is subject to a stringent overarching fiduciary duty that requires investment advisers to act in the best interests of clients and to place the interests of clients before their own. “Best interest” is defined as acting with the care, skill, prudence and diligence of a prudent person acting in a like capacity, and as considering the aims, investment objective, risk tolerance, financial circumstances and needs of the investor without regard to the financial or other interest of the individual adviser or their firm.

We encourage you to read our brochure and explore our site to learn more about the services we provide. Should you have any questions or would like more information on our firm, please email us or call us at 703.361.6130. We look forward to hearing from you.

The finest compliment we receive is a referral from our friends and clients.

Interview with Ingrid Hendershot on Value Investor with Chris Swatta show on 3-11-17 to be rebroadcast on 3-18-17 at 9:05 a.m. http://www.sportstalk570.com/

 Our Twenty Year Anniversary Special Edition demonstrates our investment strategy by chronicling events of the last two decades through excerpts from past issues.

Berkshire Hathaway 2016 Annual Meeting Notes

HI-Quality Company Updates

Thursday, March 23, 2017
The Walt Disney Company-DIS
Board of Directors announced extended Robert A. Iger’s contract as Chairman and Chief Executive Officer to July 2, 2019. 

Accenture-ACN reported second quarter revenues rose 5% in U.S. dollars and 6% in local currency to $8.3 billion with net income down 37% to $839 million and EPS off 36% to $1.33. Last year’s results included a $.74 per share gain on the sale of Navitaire. Excluding this gain, EPS was down 1% for the quarter primarily due to a higher tax rate. Operating income during the second quarter rose 5% to $1.14 billion with an operating margin of 13.7% unchanged from the prior year. New bookings for the quarter were $9.2 billion evenly divided between consulting bookings and outsourcing bookings. Revenue growth was broad-based across operating groups and geographies, led by 14% growth in Products and 12% growth in Growth Markets. New, high-growth areas such as digital, cloud and security services now account for more than 45% of total revenues and are growing at double-digit rates. Free cash flow increased 37% during the first half of the year to $1 billion. Accenture spent $829 million on 16 acquisitions during the first half while paying $785 million in dividends and repurchasing 12 million of its own shares for $1.4 billion at an average price of $116.67 per share. Accenture has $4.3 billion remaining authorized for future share repurchases. The company ended the quarter with more than $3.4 billion in cash and investments and minimal long-term debt on its strong balance sheet. For fiscal 2017, Accenture expects net revenue growth to be in the range of 6% to 8% in local currency with EPS in the range of $5.31-$5.48, which includes the impact of a non-cash pension settlement charge of $.39 per share. For fiscal 2017, the company continues to expect free cash flow to be in the range of $4.0 to $4.3 billion with acquisitions for the full year earmarked at $1.5 billion, which is expected to contribute 2% to growth.

Wednesday, March 22, 2017
hosted its 25th Annual Meeting of Shareholders and honored the accomplishments of the company in delivering record financial results, including approximately 18,000% in shareholder returns since the company’s Initial Public Offering 25 years ago, and more than $10 billion in cash distributed to shareholders via dividends and share repurchases over the past five years alone. Starbucks highlighted its strong pipeline of innovation for future growth across coffee, tea, food, digital, China and partner investments. Starbucks announced plans to create more than 240,000 new jobs globally (68,000 in the U.S.) as it reiterates intent to open 12,000 new stores globally and 3,400 new stores in the U.S. by FY21, including 100 more Military Family Stores in the U.S. to support military communities.  Opened in 2014, Starbucks first Roastery located in Seattle is already serving as a foundation for the company’s coffee innovation pipeline, providing a halo to the rest of the business. This premium coffee pipeline will continue to expand as the company opens Roastery locations in Shanghai (2017), New York (2018), Milan (2018) and Tokyo (2018) with the potential for 20-30 Roasteries globally over time.  Building on its food business through customer-driven innovation, the company plans to launch Starbucks Mercato, a new menu of lunch items that features fresh and flavorful grab-and-go salads and sandwiches that meet a variety of dietary lifestyles and are made daily, with leftover items donated nightly to local food banks through Starbucks FoodShare program with Feeding America. The Mercato menu will start with more than 100 stores in Chicago with plans to expand to other U.S. markets in the future. Starbucks continues to offer the largest and most robust mobile ecosystem of any retailer in the world, with over 13 million Starbucks Rewards members, approximately 9 million mobile paying customers, with one out of three now using Mobile Order & Pay, and more than $6 billion loaded onto prepaid Starbucks Cards in North America during 2016 alone. In China, customers have continued to embrace the Starbucks brand, with some of the company’s most innovative, efficient and profitable stores producing record revenue and strong same-store sales growth in FY16. Starbucks now operates more than 2,600 stores in 127 cities in China and employs nearly 40,000 partners, opening over a store a day – a growth rate that will continue to accelerate well into the future.

Tuesday, March 21, 2017
reported fiscal third quarter revenues rose a solid 5%, or 7% on a constant currency basis, to $8.4 billion with net income jumping 20% to $1.1 billion and EPS scoring 24% growth to $.68. Consumer demand in all geographies drove NIKE Brand revenue growth to $7.9 billion led by double-digit growth in Western Europe, Greater China and the Emerging Markets. International revenues now account for more than 50% of total revenues and are growing at double-digit rates.  This was the 14th consecutive quarter of double-digit growth in Western Europe and the 11th consecutive quarter of double-digit growth in China, which represents a “massive” long-term growth opportunity. Nike is celebrating its 20th anniversary in China, which enjoys a rapidly growing sports culture. Revenues for Converse were $498 million, up 3% on a constant currency basis, driven by growth in North America.  EPS grew faster than sales primarily due to selling and administrative expense leverage, higher other income, a lower effective tax rate and a lower average share count which more than offset a lower gross margin. Return on invested capital for the trailing 12 months was greater than 33%.  Inventories rose 7% to $4.9 billion compared to the prior year as a 3% decline in NIKE Brand wholesale unit inventories was offset by increases in average product costs per unit and higher inventories associated with 13% growth in direct to consumer sales. Cash and short-term investments were $6.2 billion at quarter end, up $1.1 billion compared to the prior year period due to growth in net income and the proceeds from the issuance of debt in the second fiscal quarter of 2017, which more than offset share repurchases, higher dividends and investments in infrastructure. During the third quarter, Nike repurchased 8.9 million shares for approximately $475 million at an average cost of about $53.37 per share. The company has $8.4 billion remaining authorized for future repurchases as part of the four-year $12 billion repurchase program approved in November 2015. Worldwide futures orders were down 4% or 1% on a constant currency basis. Management’s outlook for the fourth quarter is for mid-single digit growth in revenues, or high-single digit growth on a constant currency basis. Gross margin is expected to contract 150-175 basis points primarily due to adverse foreign exchange with selling and administrative expenses expected to be flat. For fiscal 2018, Nike expects revenue growth across all geographies with expanding profitability. However, foreign exchange will remain a significant headwind due to the strong dollar, which has resulted in $1.6 billion to $2 billion of headwinds on EPS growth in the 2016-2018 time period, with the biggest impact expected in 2018. Management will continue to work hard to mitigate these headwinds.

Apple®-AAPL updated its most popular-sized iPad®, featuring a brighter 9.7-inch Retina® display and best-in-class performance at its most affordable price ever, starting at $329 (US). Designed for unmatched portability and ease of use, along with incredible performance and all-day battery life, iPad is the world’s most popular tablet and the primary computing device for millions of customers around the world. Through the more than 1.3 million apps designed specifically for iPad, customers can do even more, from learning to code with Swift Playgrounds™ and reading books on the large screen to boosting productivity through Microsoft Office and using multitasking features like Split Screen. Apple® also introduced Clips, a new app that makes it quick and fun for anyone to create expressive videos on iPhone® and iPad®. The app features a unique design for combining video clips, photos and music into great-looking videos to share with friends through the Messages app, or on Instagram, Facebook and other popular social networks. Apple® also announced iPhone® 7 and iPhone 7 Plus (PRODUCT)RED Special Edition in a vibrant red aluminum finish, in recognition of more than 10 years of partnership between Apple and (RED). This gives customers an unprecedented way to contribute to the Global Fund and bring the world a step closer to an AIDS-free generation.

Monday, March 20, 2017
“Beauty and the Beast” movie opened to $170M domestically and $180 million overseas.  This is a record opening for a family film and a record March open. “Beauty and the Beast” is on track to cross $1 billion worldwide compared to a reported $160 million budget. Nothing beastly about those beautiful numbers!

FactSet-FDS acquired BISAM Technologies S.A. for $205.2 million from Aquiline Capital Partners and company insiders. With more than 160 employees worldwide, BISAM is a leading provider of portfolio performance and attribution, multi-asset risk, GIPS composites management and reporting. FactSet borrowed $575 million under a new revolving credit facility to fund the transaction and repay existing debt. BISAM’s annual revenues as of December 31, 2016 were over $28 million. The transaction is expected to be accretive by $0.02 to adjusted diluted EPS and dilutive by $0.06 to GAAP diluted EPS for the remainder of fiscal 2017.


March 20, 2017

Tweedy, Browne Investing Guidelines
Snippet from the Tweedy, Browne Semi-Annual 2016 report:

"From time to time people ask us what they should do (we are flattered they should ask) and our general response is not unique. First, you are in a 10,000-meter race; don’t measure your progress by each 100-meter lap. Second, remember what you are investing for – it should extend your time horizon, which is a good thing to do. Third, don’t carry too much debt – if you don’t owe anybody anything, they can’t tell you what to do. Fourth, keep several years of living expenses in the bank. While it won’t earn much today, it will help keep you calm if there is a financial storm. Fifth, as Stuart Alsop once said in so many words, when you open the paper, turn to the sports page first; then, go to the news – it will help you emotionally, and controlling your emotions is an important part of this game. And finally, and perhaps somewhat selfserving, try to understand how the person you have entrusted some of your money to makes decisions. It should help you make sense of the world when it is seemingly making no sense and help you make an informed decision. "

Feb. 27, 2017
Not In Bubble Territory

In a recent CNBC interview, Warren Buffett, CEO of Berkshire Hathaway-BRKB, was asked about the current market valuation after the Dow’s rapid run to 20,000. Here is a tidbit from the interview with the full transcript linked below:

"We are not in a bubble territory or anything of the sort. Now, if interest rates were 7 or 8 percent then these prices would look exceptionally high.  But measured against interest rates, stocks actually are on the cheap side compared to historic valuations. But the risk always is, is that — that interest rates go up a lot, and that brings stocks down. But I would say this, if the ten-year [Treasury] stays at 2.3%, and they would stay there for ten years, you would regret very much not having bought stocks now. If you buy a 10-year bond now, you're paying over 40 times earnings for something whose earnings can't grow. And you know, you compare that to buying equities, good businesses, I don't think there's any comparison. But that doesn't mean the stock market can't go down 20 percent tomorrow. I mean, you never know what it's going to do tomorrow, but you do know what it's going to do over ten or 20 years. And people talk about 20,000 being high. Well, I remember when it hit 200 and that was supposedly high.  You know, you're going to see a Dow that certainly approaches 100,000 and that doesn't require any miracles, that just requires the American system continuing to function pretty much as it has.

Feb. 25, 2017

Fear Is Your Friend

Snippet from the Berkshire Hathaway-BRKB annual report:

"American business--and consequently a basket of stocks--is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Moreover, the years ahead will occasionally deliver major market declines--even panics--that will affect virtually all stocks. No one can tell you when these traumas will occur. During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well."

Feb. 14, 2017
A Love Letter to Warren Buffett
Tidbit from Fortune:
Please read the entire heartwarming letter from Bill and Melinda Gates.  It tells a story in numbers. The big one is 122 million, the number of children’s lives that have been saved since 1990 by fighting infant mortality. The Gates letter says 86% of children now receive the most important vaccines they need to live healthy lives, the highest number ever.

Feb. 3, 2017
Invest For the Long Term
In a recent speech at Columbia University, Warren Buffett, CEO of Berkshire Hathaway-BRKB, repeated his basic investment philosophy:

"It's much easier to invest for the long term because you know what is going to happen. You know, in my view, with a very high probability you know what is going to happen 10 and 20 years from now in a major way, and I don't have the faintest idea what is going to happen tomorrow or next week."

When selecting investments, he looks for:
1. A business with a moat
"I am looking for durable competitive advantage," says Buffett. "I am looking for something that has a moat around it for a considerable period of time."

2. Strong leadership
"I am looking for an honest and able management to run [the company] because I don't know how to run it myself," says Buffett.

3. A good price for a good company
"I am looking for a purchase price that is not excessive," says Buffett. "It is better to pay a little too much for something that is a very good business than it is to buy some bargain but really a company without much of a future," says Buffett.

Jan. 12, 2017
Expert Opinion

The latest memo from Howard Marks expounds on his opinion on opinions. Here is a tidbit:
Since I’ve discussed these things at great length over the years, I‘ll try here to sum up succinctly:
• There are no facts about the future, just opinions. Anyone who asserts with conviction what he thinks will happen in the macro future is overstating his foresight, whether out of ignorance, hubris or dishonesty.
• Developments in economies, interest rates, currencies and markets aren’t the result of scientific processes. The involvement in them of people – with their emotions, foibles and biases – renders them highly unpredictable.As physicist Richard Feynman put it, “Imagine how much harder physics would be if electrons had feelings!”
• It’s one thing to have opinions on these subjects, but something very different to be confident they’re right (and act on them).
• Taking bold action based on forecasts of things that are uncertain isn’t just misguided; it’s dangerous. As Mark Twain said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for certain that just ain’t true.”

 Nov. 23, 2016
Six Keys to Investment Success
Brian Rogers, Chairman of T. Rowe Price-TROW, shared these six keys to investment success:
1) Be An Optimist
2 )View Crises as Opportunities
3) Price Determines Success
4) Be Humble
5) Avoid Complexity
6) Avoid Investment Cults

Stocks Are Cheap, If...
Snippet from Warren Buffett as he addressed questions from university students at the University of Maryland:

"Interest rates are to asset valuation as gravity is to matter.  It will take a lot of movement in interest rates (similar to Paul Volcker in 1981-2) before stocks are too high.  The interest rates on 30 year Treasury bonds have declined from 14 ½ % to 2 ½ % from 1982 to 2016.  Recently, the 30 year Treasury moved from 2.6% – 2.8%.  Stocks are cheap if long term rates are at 4%, four to five years from now.  “We are buying more shares than selling everyday unless interest rates move appreciably higher”.  A profitable trade would be to short the 30 year bond and go long the S&P 500 (assuming no margin calls).  But this is difficult to do on a big scale.  Borrowed money causes more people to go broke than anything else. Charlie Munger has said, smart people “go broke from liquor, ladies and leverage”.


Nov. 12, 2016
Buffett on the Stock Market and the Election

Investor Warren Buffett, CEO of Berkshire Hathaway, said "The stock market will be higher 10,20 and 30 years from now and it would have been with Hillary and it will be with Trump." Buffett added that he had been buying stocks in the weeks prior to the election and he continued to buy stocks after the election. http://money.cnn.com/2016/11/11/investing/warren-buffett-donald-trump-stock/

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