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lebruary 11, 2014

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"#*'- 60220=- ,3*, &6 ,3# "*$+#, 3*- ,3&- &'60$"*,&0' &, =&22 ,3#$#840' #-,*12&-3 ,3# $&%3, 4$&5#>?
@ A#'B*"&' C$*3*"
Peadlng lnLo !anuary, Lhe blggesL sLory ln Lhe flnanclal arena was Lhe acceleraLlng u.S. economy. uurlng
Lhe monLh, mosL daLa polnLs conflrmed Lhls bellef. ?eL desplLe Lhls conflrmaLlon, Lhe Lwo blg sLorles
comlng ouL of !anuary were Lhe escalaLlng Lroubles ln Lmerglng MarkeLs and Lhe awful weaLher
experlenced LhroughouL much of Lhe unlLed SLaLes, ranglng from droughL Lo olar vorLex" Lo feeL of
snow. ln our 2014 lnvesLmenL CuLlook we declared lL ls qulLe posslble, almosL probable LhaL 2014 wlll
be a beLLer year for Lhe economy Lhan lL wlll be for Lhe sLock markeL." AfLer one monLh, Lhls almosL
probable" looks lncreaslngly llkely.
!anuary 2014 ls a Lough monLh Lo wrlLe abouL for many reasons. ?ear-end, generally speaklng, ls an
arblLrary meLrlc aL whlch Llme people make Lhelr larger reflecLlons, [udgmenLs and pro[ecLlons. ln Lhls
regard, we are no dlfferenL Lhan Lhe crowd havlng recenLly offered our more ln depLh expecLaLlons for
Lhe calendar year ahead. And durlng !anuary, noLhlng changed Lo warranL any deeper conslderaLlon of
our vlews. lL would be nlce Lo wax eloquenLly abouL Lhe Lmerglng MarkeL Lroubles whlle argulng some
profound polnL wlLh convlcLlon, however, Lhere are only Lwo very slmple polnLs worLh maklng abouL
Lroubled" areas: 1) Lhey are called Lmerglng MarkeLs because Lhey are prone Lo Lroubles, and, 2) Lhere
ls llLLle rlsk of conLaglon from Lmerglng MarkeLs hurLlng Lhe acLual economy here ln Lhe uS. Slnce we
know Lhese Lo be LruLhs, Lhen why are markeLs movlng so vlolenLly based on Lmerglng MarkeL" fears?
1he answer Lo LhaL ls also qulLe slmple: markeLs had a greaL 2013 and needed any excuse Lo cool off for
Lhe Llme belng. Secondarlly, Lhere are large, mulLl-naLlonal funds LhaL have exposure boLh Lo Lhe
developed world and Lmerglng MarkeLs. When Lhese funds reallze severe losses ln one area, Lhey musL
Lrlm exposure ln Lhe oLher area ln order Lo proLecL Lhemselves from furLher losses.
ln our !uly commenLary, we made Lhe followlng clalm wlLh regard Lo Lmerglng MarkeLs whlch we
belleve rlngs as Lrue Loday as lL dld Lhen


We can see a paLh Lo Lmerglng MarkeLs regalnlng favor, Lhough we approach Lhls parL of Lhe
globe wlLh far more susplclon and uncerLalnLy Lhan we dld Lurope.
1here are several unquanLlflable rlsks, lncludlng serlous quesLlons abouL Lhe rule of law ln some
domalns. As such, we pursue exposure Lo Lhese areas prlmarlly Lhrough u.S.-based mulLlnaLlonal
flrms LhaL en[oy earnlngs leverage Lo Lmerglng MarkeLs, wlLhouL rlsklng permanenL lmpalrmenLs
Lo earnlngs should Lmerglng MarkeL growLh noL play ouL as planned.
Whlle we subsequenLly dld commence one slngle poslLlon LhaL ls an Lmerglng MarkeL" sLock, lL has
moved mlnlmally amldsL Lhls recenL flL. We conLlnue Lo scour Lhose parLs of Lhe world for opporLunlLy
wlLh ample doses of skepLlclsm.
8eyond Lhls brlef conversaLlon abouL Lmerglng MarkeLs, Lhere are Lwo furLher polnLs we wanL Lo
emphaslze comlng ouL of whaL ls amongsL Lhe weakesL markeL monLhs ln Lwo years: when everyone
acknowledges some reallLy ln markeLs, lL's a near cerLalnLy LhaL Lhe polnL belng made does noL maLLer
for fuLure sLock performance, and, markeLs and Lhe economy do noL necessarlly move ln Landem. Lach
polnL comes wlLh lLs own corollarles LhaL deserve furLher explanaLlon.
)$> )*$+#, D&-508',- ,3# E19&08-
When people say LhaL markeLs are efflclenL" Lhey are asserLlng Lhe facL LhaL markeLs lncorporaLe all
known lnformaLlon lnLo prlces. ln Lhese commenLarles, we have ofLen Lalked abouL areas where markeL
efflclency breaks down. 1hls ls only naLural, for we seek ouL such slLuaLlons ln order Lo flnd aLLracLlve
lnvesLmenL opporLunlLles and we do Lhlnk Lhere are ample lnefflclencles worLhy of our Llme and
aLLenLlon. 1haL belng sald, wlLh Lhe blg quesLlons faclng Lhe economy and Lo a lesser exLenL, Lhe
quesLlons faclng wldely followed sLocks, Lhe markeL ls lncredlbly efflclenL ln lncorporaLlng wldely
undersLood lnformaLlon. SLaLed anoLher way, lL Lakes an unanLlclpaLed surprlse (an redundancy of sorLs)
ln order Lo serlously move Lhe prlce of a markeL or sLock.
All Lhls serves as a long preface Lo a raLher slmple ldea: when everyone knows someLhlng Lo be Lrue, so
Loo does Lhe markeL. known lnformaLlon geLs fully lncorporaLed lnLo markeL prlces, and as such, Lhere ls
llLLle advanLage for an lnvesLor Lo acL upon LhaL polnL of facL.
1hls was Lhe underlylng reasonlng behlnd our asserLlon LhaL Lhe year would be beLLer for Lhe economy
Lhan Lhe sLock markeL. As far as Lhe economy goes, lL was so wldely asserLed ln Lhe analysL and flnanclal
press communlLles LhaL Lhe economy would acceleraLe ln 2014 such LhaL Lhere was llLLle, lf any value ln
acLlng upon Lhls bellef. ConvenLlonal wlsdom ls [usL LhaL, convenLlonal. lL Lakes speclal lnslghL, analysls
or LemperamenL Lo acLually achleve a dlfferenL ouLcome.

/3# F#*2&,<GH#$60$"*'5# D&9#$%#'5#
Cverslmpllfylng ls ofLen helpful, so here goes yeL agaln. 1here are Lwo baslc sources of reLurn ln sLocks:
Lhe yleld of Lhe equlLy and changes ln Lhe mulLlple.
! #$%&'( )%&*+##%,- %# -+.+##/*0 1+2,*+ 3,4%-& 25*('+*6 7'+- 8+ (/$9 /1,5( ('+ 0%+$) ,- ('+ +:5%(0; 8+
/*+ *+2+*+-.%-& #,3+('%-& /9%- (, ('+ #(,.9<# +/*-%-&# =+* #'/*+ )%4%)+) 10 ('+ =*%.+ 10 #'/*+6 >/.' 0+/*
/ .,3=/-0 3/9+# 3,-+06 !# +/*-%-&# .,3+ %-; ('/( 4/$5+ /..*5+# ,- (,= ,2 8'/( #'/*+',$)+*# /$*+/)0
,8-6 ?,3=/-%+# ./- ), #+4+*/$ ('%-&# 8%(' ('/( 3,-+0@ =/0 %( ,5( (, #'/*+',$)+*# /# / )%4%)+-); 5#+ %( (,
1501/.9 #(,.9; ,* %-4+#( (, &*,8 ('+ 15#%-+##6 7'+- 8+ #/0 0%+$); 8+ 3+/- /$$ ,2 / .,3=/-0<# =*,2%(; -,(
A5#( %(# )%4%)+-)6
Lvery year, Lhe yleld on Lhe equlLy accrues Lo shareholders as a source of reLurn. LeL's say a sLock earns
$2 per year and ls prlced aL $20. 1haL sLock would have a yleld of 10. AL Lhe same Llme, LhaL sLock's
mulLlple would be 10x, meanlng Lhe sLock Lrades for Len Llmes lLs earnlngs. 1he yleld of Lhe equlLy and
Lhe mulLlple are relaLed ln LhaL Lhey are Lhe lnverse of each oLher.
When you buy a sLock, you wlll earn Lhe yleld lnsofar as Lhe earnlngs conLlnue Lo come ln, buL Lhe
mulLlple ls sub[ecL Lo change. AL Lhe end of a year, shareholders would capLure" LhaL $2 ln earnlngs,
and Lhe sLock ln Lheory should be worLh $22 aL Lhe end of Lhe year, assumlng Lhe earnlngs sLream was
noL growlng. Were Lhe company Lo pay ouL 100 of lLs earnlngs as proflLs, Lhen a shareholder would sLlll
own a $20 sLock, buL have Lhe $2 ln hls/her pockeL, Lhus also effecLlvely ownlng" $22 ln value.
Powever, aL Lhe end of Lhe day, Lhere ls no guaranLee LhaL Lhe mulLlple wlll sLay aL 10x. erhaps
lnvesLors belleve Lhe company's fuLure ouLlook ls beLLer Lhan Lhe recenL pasL. ln LhaL case, lnvesLors
would be wllllng Lo pay a mulLlple hlgher Lhan 10x, and Lhe sLock prlce would rlse accordlngly wlLhouL
any acLual change ln Lhe level of earnlngs. AlLernaLlvely, perhaps lnvesLors fear a compeLlLor wlll sLeal
buslness from Lhe company. 1hen, lnvesLors mlghL only be wllllng Lo pay a mulLlple LhaL ls 3x earnlngs
and Lhe sLock prlce would drop accordlngly.
Slnce Lhe mulLlple ls drlven by confldence and expecLaLlons, lL ls lnherenLly prone Lo behavloral blases.
lurLher, Lhe mulLlple Lends Lo be far more volaLlle Lhan Lhe acLual Lra[ecLory of Lhe underlylng earnlngs
Lhemselves. Pereln lles Lhe reason why reallLy and performance ofLen do noL move ln Landem.
I3#$# :0#- ,3&- 2#*9# 8- ,0:*<J
As of Lhe close of !anuary, markeLs are Lhrowlng a hlssy-flL and everyone ls searchlng for reasons. We
Lhlnk Lhe mosL obvlous reason ls LhaL markeLs had a greaL year ln 2013 anLlclpaLlng Lhe lmprovemenL ln

Lhe real economy LhaL ls sLarLlng Lo play ouL ln 2014. Conslderlng Lhe economy ls lmprovlng, and Lhe
rlsks of recesslon remalns falrly low, Lhe sLock markeL should experlence a much-needed correcLlon
wlLhouL enLerlng lnLo a more concernlng 8ear-markeL.
1hank you for your LrusL and confldence, and for selecLlng us Lo be your advlsor of cholce. lease call us
dlrecLly Lo dlscuss Lhls commenLary ln more deLall - we are always happy Lo address any speclflc
quesLlons you may have. ?ou can reach !ason or LllloL dlrecLly aL 316-663-7800. AlLernaLlvely, we've
lncluded our dlrecL dlal numbers wlLh our names, below.
Warm personal regards,

Jason Gilbert, CPA/PFS, CFF
Managing Director
O: (516) 665-7800
D: (516) 665-1940
M: (917) 536-3066
Elliot Turner, Esq.
Managing Director
O: (516) 665-7800
D: (516) 665-1942
M: (516) 729-5174

Past performance is not necessarily indicative of future results. The views expressed above are those of RGA Investment
Advisors LLC (RGA). These views are subject to change at any time based on market and other conditions, and RGA disclaims any
responsibility to update such views. Past performance is no guarantee of future results. No forecasts can be guaranteed. These
views may not be relied upon as investment advice. The investment process may change over time. The characteristics set forth
above are intended as a general illustration of some of the criteria the team considers in selecting securities for the portfolio.
Not all investments meet such criteria. In the event that a recommendation for the purchase or sale of any security is presented
herein, RGA shall furnish to any person upon request a tabular presentation of: (i) The total number of shares or other units of
the security held by RGA or its investment adviser representatives for its own account or for the account of officers, directors,
trustees, partners or affiliates of RGA or for discretionary accounts of RGA or its investment adviser representatives, as
maintained for clients. (ii) The price or price range at which the securities listed in item (i) were purchased. (iii) The date or
range of dates during which the securities listed in response to item (i) were purchased.

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