To: East Coast Asset Management Clients and Interested Parties

From: Christopher M. Begg, CFA – CEO, Chief Investment Officer, and Co-Founder

Date: January 30, 2014

Re: Fourth Quarter 2013 Update – Navigating Beyond the Pillars

In our fourth quarter letter you will find our portfolio update and general market observations. Each quarter we highlight one component of our investment process. This quarter, in the section titled Navigating Beyond the Pillars, I will discuss some lessons we have borrowed from navigation and how we apply them to our process and the current investment environment. I will also continue the discussion from last quarter’s letter on the investment checklist we employ. As is our standard practice, client reporting, including performance and positioning, will be sent under separate cover.

Market Summary

East Coast

2013 was a very good year for equity markets in general and we were pleased with the performance of our portfolio of businesses. The S&P 500 returned 32.38% and the MSCI World Index logged a return of 23.53%. Emerging markets materially lagged the U.S. markets registering a -2.34% return for the MSCI Emerging Market Index as social tensions in Brazil,
growth concerns in China, and continued challenges in developing economies combined to anchor returns. Interest rates inched higher throughout the year translating to negative fixedincome returns – the Barclays Aggregate Bond Index returned -2.02%.

A ship’s log entries include the date, the course steered, distance made good, wind directions, description and quantity of sails set aloft, approximate velocities, and remarks concerning important events. Quarterly letters, like a ship’s log, act as a record – stating the conditions of the environment being encountered at a point in time and the resulting actions taken. These periodic updates provide a record of decision-making that can be used for learning.

For the majority of our five-year history, our quarterly letters have reported an optimistic vantage point for a compounding passage. These updates have been echoing fair winds – attractive valuations, following seas – monetary stimulus, all sails set – nearly fully invested in equities, and distance made good – favorable absolute and relative annual and cumulative returns. We documented each squall (mostly government-related) and shared our reasoning behind our decision to remain under the full sail of equity investments through the volatility. As the market becomes more fully valued, the course we navigate will need to evolve to the changing opportunity set. While we believe our decisions have been in harmony with price action, we expect we will have more to write in future letters when our short-term performance appears discordant with the cheers or boos of the marketplace.

See Full PDF here East Coast Q4 2013 Letter Navigating Beyond the Pillars

East Coast Q4 2013 Letter_ Navigating Beyond the Pillars