OUR DECEMBER RESULTS

Our weighted average return in December was -8.26%. Since 2015, we have generated a net return of +27.65%.

In terms of investment strategy performance, our weighted average net returns for December were (a) -0.11% for conservative strategies, (b) -5.83% for balanced strategies, and (c) -13.14% for aggressive strategies.

December was the worst month for the S&P 500 index (-9.18%) since February of 2009, capping off a year that generated negative returns in all asset classes except short-term US government debt.

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Apple – The Staple of Luxury

Hello! Here’s a piece by our new analyst Pēteris Celms. Many more to come!

Apple’s Business Model

Apple has every right to the outsized profits it makes on the iPhone. Consumers could buy cheaper Android devices, but they don’t. Why? Because they value Apple’s hardware, or iOS software, or most likely, the ubiquity of the brand and the status that it has come to represent.

If you want the Apple experience, you buy Apple hardware, and in turn, use Apple software. And in order to access the digital content market install any other applications, you also have to go through Apple’s App Store. Apple does nothing to increase the value of Netflix or Spotify subscriptions, among many other digital services from app providers purchased through the App Store, but they charge a percentage for every one of these transactions (e.g. 30% in the first year, 15% every year after that for recurring subscription payments) just because they can, and will continue to be able to do so while ~45% of U.S. consumers, the world’s largest market, carry Apple devices.

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OUR NOVEMBER RESULTS

Our weighted average return in November was -0.96%. Since 2015, we have generated a net return of +38.73%.

In terms of investment strategy performance, our weighted average net returns for November were (a) +0.15% for conservative strategies, (b) -0.09% for balanced strategies, and (c) -2.11% for aggressive strategies.

Markets continued to be extremely volatile in November. The S&P 500 index traded all over the place, giving up -3.83% in the third week of the month, before jumping +4.71% the very next week. By month end, the S&P 500 had gained +2%. Emerging market stocks (+5.07%) finally managed to rally on the back of lower US bond yields, and US investment grade bonds ended the month +0.64%.

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OUR OCTOBER RESULTS

Our weighted average return in October was -3.88%. Since 2015, we have generated a net return of +40.48%.

In terms of investment strategy performance, our weighted average net returns for September were (a) -1.36% for conservative strategies, (b) -6% for balanced strategies, and (c) -2.97% for aggressive strategies.

October was a brutal month. In all of 2017, the S&P 500 index had 12 trading days where the daily change in price exceeded 1%. October had 10 such trading days. The monthly performance for key equity index ETFs were as follows: S&P 500 index -6.91% (SPY US), Euro Stoxx 50 index -8.18% (FEZ US), and MSCI Emerging Markets index -8.76% (EEM). Bonds outperformed equities, but there was nowhere to hide in the fixed income space as well. The Vanguard Total Bond Market ETF was -0.86% (BND US), the iBoxx $ High Yield Corporate Bond index (HYG US) was -1.98% and the JPMorgan Emerging Market Bond index (EMB US) was -2.42%. Ugly numbers. The only safe haven was the US dollar, which increased 2.59% versus the euro.

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OUR SEPTEMBER RESULTS

Our weighted average return in August was +4.74%. Since 2015, we have generated a net return of +46.16%.

In terms of investment strategy performance, our weighted average net returns for September were (a) +.03% for conservative strategies, (b) +1.70% for balanced strategies, and (c) +9.37% for aggressive strategies.

September marked the 10th anniversary of the collapse of Lehman Brothers. Despite considerable media mention of this painful theme, US equities continued to trade higher and gained 0.59% in September, posting an impressive gain of 7.7% for the third quarter of this year. In terms of economic data, US consumer confidence hit its highest level since 2000 (around the peak of the ‘dot.com’ bubble), while US small business confidence hit its highest level since the National Federation of Independent Businesses began its survey in 1974. Moreover, monthly average unemployment figures hit their lowest level since 1969 – the year the US Apollo Mission successfully landed on the Moon.

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OUR AUGUST RESULTS

Our weighted average return in August was +2.67%. Since 2015, we have generated a net return of +39.53%.

In terms of investment strategy performance, our weighted average net returns for August were (a) -0.33% for conservative strategies, (b) -0.71% for balanced strategies, and (c) +7.18% for aggressive strategies.

August was a difficult month for almost all asset classes other than US stocks, as it remains quite clear that international trade tensions have done little to dim US business confidence.

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OUR JULY RESULTS

Our weighted average return in July was +1.30%. Since 2015, we have generated a net return of +35.90%.

In terms of investment strategy performance, our weighted average net returns for July were (a) +1.07% for conservative strategies, (b) +1.77% for balanced strategies, and (c) +0.96% for aggressive strategies.

July was good month for most asset classes. Trade tensions remained heightened, but the outstanding strength of corporate earnings in the US and Europe pushed equity markets to new highs. S&P 500 earnings per share grew a phenomenal 25% year-over-year. While US corporate tax cuts certainly contributed to these gains, they were not the only differentiating factor. In their analysis of the Q2 earnings season, Goldman Sachs commented that: “the effective tax rate for the overall S&P 500 index equaled 25% in 2Q 2017, but fell to 20% in 2Q 2018. However, pre-tax earnings rose by an impressive 16%, ahead of the 13% expectation at the start of reporting season.” Truly, a superb result.

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OUR JUNE RESULTS

Our weighted average return in June was -0.32%. Since 2015, we have generated a net return of +34.16%.

In terms of investment strategy performance, our weighted average net returns for June were (a) -0.46% for conservative strategies, (b) +0.65% for balanced strategies, and (c) +0.16% for aggressive strategies.

Trump’s trade war antics took center stage in June, causing broad weakness in emerging market bonds (-1.49%) and equities (-4.54%), as well as base metals (copper -3.72%; nickel -2.18%; zinc -6.89%). The effect of trade wars is simple: tariffs increase costs to producers, which they then pass on to consumers. Higher prices for consumers lead to lower demand. Guess who wins? No one! Now carry this dynamic over to companies with multi-national supply chains and consider the disruptions tariffs might cause. Fun, right? And so, because markets dislike uncertainty, we saw considerable sell-offs in exporters and raw goods suppliers. No one can say for certain how long Trump’s trade war tactics will endure, but the longer they persist, the greater the chance they will damage economic sentiment.

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OUR MAY RESULTS

OUR MAY RESULTS

Our weighted average return in May was +0.66%. Since 2015, we have generated a net return of +34.59%.

In terms of investment strategy performance, our weighted average net returns for May were (a) -0.91% for conservative strategies, (b) +0.04% for balanced strategies, and (c) +2.39% for aggressive strategies.

The dominant theme in May was the continued resurgence of the US dollar, which gained 3.5% versus the euro. The media attributed this move to political strife in Italy and Spain, but the fact of the matter is that the US economy is doing extremely well. First quarter earnings for the S&P 500 rose by 24% versus the same period last year and the flash manufacturing purchasing managers index also rose in May.

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