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May 12, 2014

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Were one Lo look aL Lhe S& 300 or uow !ones ln Aprll, Lhe monLh looked falrly Lame wlLh Lhe lndlces
Lacklng on 0.70 and 0.73 galns respecLlvely. Powever, Aprll was by no means a calm monLh, as Lhe
8ussell 2000 experlenced slgnlflcanL paln, sheddlng 3.73. 1here were many sLocks around Lhe markeL
down over 10 ln Lhe monLh alone. All Lhls was masked ln Lhe ma[or lndlces by ouLperformance ln
defenslve secLors llke uLlllLles, whlch added 3.36 on Lhe monLh. We had been calllng for a momenLum
flush ouL" for several monLhs runnlng, and Lhe spread ln performance beLween Lhe 8ussell and Lhe more
senlor lndlces ls Lhe clearesL slgn LhaL Lhls flush ouL ls underway.
lL ls unllkely for Lhe ma[or markeL lndlces Lo sLay compleLely free of Lhe paln whlle momenLum geLs
punlshed, however, longer-Lerm we vlew Lhls acLlon as exLremely healLhy. Pad Lhese egreglously valued
Lechnology sLocks conLlnued Lhelr march hlgher, lL would have creaLed an lncreaslngly unsLable markeL
envlronmenL. WhaL Lhese flush ouLs do ls remlnd overconfldenL Lraders LhaL galns ln markeLs should noL
be easy, and paln ls naLural every now and Lhen. As such, Lhls should help relgn ln rlsk managemenL and
make markeL parLlclpanLs once agaln more senslLlve Lo valuaLlon.
MarkeLs work whereby such evenLs are dlsorderly and emoLlonal. 1hls ls an lmporLanL facL, for we all
musL be aware LhaL Lhlngs can and ofLen do geL messy. 1he broader economy has llLLle exposure Lo Lhe
nolse broughL abouL by Lhese problems and glven Lhls, we would label Lhls more of a valuaLlon
correcLlon" Lhan a reprlclng of rlsk ln Lhe economy. AlLhough our porLfollos are more conservaLlvely
posLured Lhan Lhe markeL, we wlll noL be able Lo avold Lhe lmpacL of rlslng volaLlllLy. 1hough fear noL, as
such volaLlllLy ls Lhe caLalysL ouL of whlch opporLunlLy ls born. lndlscrlmlnaLe and emoLlonal selllng ls
exacLly whaL creaLes value-drlven lnvesLmenLs.
We Lhlnk lL ls lmporLanL Lo noLe LhaL we enLered Lhls perlod wlLh a deLalled waLch llsL of poLenLlal
lnvesLmenLs, wlLh LargeL prlce alerLs seL and our research largely flnlshed. Some oLher managers sLarL
Lhelr research as opporLunlLy arlses, buL we sLarL our acLlon. Cur research has been done ln anLlclpaLlon
of [usL such an evenL, and we wlll paLlenLly awalL Lhe rlghL klnds of slLuaLlons Lo sLep lnLo, ln Lhe rlghL
klnds of companles.

AlLhough uS markeLs have been a blL shaky Lo sLarL 2014 (as evldenced by Lhe 8ussell 2000), we
conLlnue Lo flnd value ln Lurope. Many Luropean markeLs remaln aL depressed valuaLlons. lurLher,
Lurope has a large populaLlon of exLremely hlgh quallLy global companles owned and operaLed by Lhelr
foundlng famllles. 1hese famllles have a long-Lerm focus, and operaLe Lhelr buslness from Lhe
perspecLlve of how besL Lo lncrease Lhe value of Lhe equlLy and keep Lhelr buslnesses lmmune from Lhe
prlnclple-agenL problem we see so ofLen ln uS-based companles.
MosL lmporLanL, slnce we are flrsL and foremasL senslLlve Lo valuaLlon, Lhese companles Lrade aL
valuaLlons half Lhose of Lhelr uS peers. Whlle uS markeLs have largely recovered from Lhe llnanclal
Crlsls, and Luropean economles conLlnue Lo lmprove from Lhelr own woes, values remaln far more
favorable across Lhe pond Lhan Lhey do here. When we make lnvesLmenLs, ofLen our alm ls Lo make
money boLh on Lhe hlgh free cash flow yleld Lhese companles offer and on mulLlple expanslon (see our
!anuary and lebruary commenLarles for a deeper conversaLlon on markeL mulLlples as Lhls ls an
lmporLanL recurrlng Lheme).

We are hopeful LhaL glven Lhls spaLe of volaLlllLy, some exLremely aLLracLlve long-Lerm lnvesLmenLs wlll
hlL our LargeL prlces. Whlle we Lhlnk some of Lhese companles are already aL polnLs where long-Lerm
lnvesLors can generaLe poslLlve expecLed reLurns, we do noL Lhlnk Lhe Lradeoff beLween rlsk and reward
ls favorable enough. Should Lhe balance shlfL furLher ln our favor, we wlll be ready Lo acL accordlngly.
MosL of Lhe Llme ln markeLs Lhe key Lo maklng money ls Lo do noLhlng, and conslderlng some of Lhe
porLfollo balanclng we dld earller Lhls year, we by and large Lhlnk Lhls ls Lhe case rlghL now.


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,

!ason CllberL, CA/lS, Cll
Managlng ulrecLor
C: (316) 663-7800
u: (316) 663-1940
M: (917) 336-3066
LllloL 1urner, Lsq.
Managlng ulrecLor
C: (316) 663-7800
u: (316) 663-1942
M: (316) 729-3174

"#$% &'()*(+#,-' .$ ,*% ,'-'$$#(./0 .,1.-#%.2' *) )3%3(' ('$3/%$4 1he vlews expressed above are Lhose of 8CA lnvesLmenL Advlsors LLC (8CA).
1hese vlews are sub[ecL Lo change aL any Llme based on markeL and oLher condlLlons, and 8CA dlsclalms any responslblllLy Lo updaLe such
vlews. asL performance ls no guaranLee of fuLure resulLs. no forecasLs can be guaranLeed. 1hese vlews may noL be relled upon as lnvesLmenL
advlce. 1he lnvesLmenL process may change over Llme. 1he characLerlsLlcs seL forLh above are lnLended as a general lllusLraLlon of some of Lhe
crlLerla Lhe Leam conslders ln selecLlng securlLles for Lhe porLfollo. noL all lnvesLmenLs meeL such crlLerla. ln Lhe evenL LhaL a recommendaLlon
for Lhe purchase or sale of any securlLy ls presenLed hereln, 8CA shall furnlsh Lo any person upon requesL a Labular presenLaLlon of: (l) 1he LoLal
number of shares or oLher unlLs of Lhe securlLy held by 8CA or lLs lnvesLmenL advlser represenLaLlves for lLs own accounL or for Lhe accounL of
offlcers, dlrecLors, LrusLees, parLners or afflllaLes of 8CA or for dlscreLlonary accounLs of 8CA or lLs lnvesLmenL advlser represenLaLlves, as
malnLalned for cllenLs. (ll) 1he prlce or prlce range aL whlch Lhe securlLles llsLed ln lLem (l) were purchased. (lll) 1he daLe or range of daLes
durlng whlch Lhe securlLles llsLed ln response Lo lLem (l) were purchased4

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