East Coast Asset Management's Quarterly Letter

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Our primary investment objective is to strive to achieve superior long-term capital growth with minimized risk of loss. We conclude the attribution of our success historically has been and we feel will continue to be through studying and sourcing undervalued or mispriced investments.

We have also learned that a global macro perspective is a necessary overlay to limit tail risks and help expose the portfolio to secular tailwinds. In this light, we have given further thought into the polarity of forces at work in the macro environment. In the following section we share how our thoughts on this subject have evolved.

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At East Coast we are keenly focused on what businesses earn the right to sell goods and services as demand patterns evolve globally. We believe our biggest opportunity will come from the consumer force that will change over the years and decades to come. Simply put, we want to own global businesses that have a localized advantage. In the following section of the letter I describe what it means to be a local champion – a Nuthatch Concept™.

Below is a list of outcomes where we see reason to mitigate risk and position for opportunity:

1) Developed countries continue to exercise “force majeure” and print money to debase the value of their debts. Unemployment continues to be a focal point of the developed world. Quantitative easing appears to be the medicine to quell further job losses. A US election cycle will incent the Federal Reserve and our Administration to err on the side of more stimulus action.

2) Emerging countries play their hand deliberately and allow for their consumer populations to grow and rebalance mismatches versus sudden shocks that could drive social unrest.

3) Inflation will be heightened globally and accumulated wealth is at risk of losing purchasing power. Limit fixed-dollar investments.

4) We believe global equities will perform better than expected as investors seek an alternative reserve currency as paper currencies and bonds lose value.

5) High quality businesses that can raise prices and whose products have localized advantages with a growing emerging market consumer will thrive. We conclude that high quality businesses also represent the most attractive valuations from today’s prices.

6) Interest rates continue to move higher to calibrate for real purchasing power erosion. Rates have already moved 100 basis points and upward pressure will continue.

7) We expect weakness in the developed world currencies (USD, Euro, and Yen) versus emerging country currencies which serves to increase attractiveness of developed world exports and helps bridge imbalances.