***Below is a section of our client market commentary letter. We have removed specific stock reviews and other information that is meant for clients eyes only.***

Discipline Defeats the Roller Coaster

There’s something we often say in our office as we discuss portfolios and the market as a whole. During times of volatility it helps us stay grounded and maintain the discipline that our clients expect, it’s simple but in our eyes, it’s very profound. “Volatility is the price you pay for returns.”

This first quarter of 2016 was a perfect example of why we refer to that saying often. If you’ve ever been on a roller coaster then you know how the first quarter felt. It was a fantastic ride that ultimately ended as discipline won out.

Below is a picture of the S&P 500 (an index of the 500 largest U.S. companies). Here’s a snapshot of what occurred over the last three months. (You know what they say, “a picture is worth a thousand words!”)

1. The market had the worst start in history! In 16 days the S&P 500 fell 11%. This caused more commotion and fear than we have experienced since 2008. You most likely saw and heard more gold commercials than normal (buy gold, the end of the world is here!) or even worse, annuity salesmen preying on those fears and encouraging people to buy an expensive piece of junk, an annuity.
2. After the market rebounded slightly in late January it quickly fell in early February back to its January lows. The fear caused a few people to call our office and request “sell and go cash.” We knew that this was the wrong move for clients as the worst time to sell is when there is that much fear in the market. We actually took the opposite view and were able to scoop up terrific companies for very cheap prices.
3. The market quickly rebounded 10% from its February 11^th lows in 25 days. Some thought this rally was “too far too fast.”
4. Despite people’s continued negative market comments, the S&P 500 has rallied 14.5% in 52 days.

So what did we learn (again) while riding this roller coaster?

• Discipline pays off. We have our investing process and we stick to it. We do not to get caught up in the fear mongering that takes place when volatility rises. We stick to what we know is best for our clients.
• A falling market is an opportunity. During the market sell-off to start the year we were able to utilize options for clients and to buy terrific companies for cheaper prices than we otherwise would have.
• Trying to time the markets is one of the hardest things in investing. This market volatility was nothing new for us. We’ve been in the business long enough to experience this type of market. However, for most people trying to do this alone, this type of market is a wealth destroyer. Way too many people sell their assets when fear is the greatest only to see the market rally 15% off its lows.
• Volatility is the price you pay for returns. If you truly want to grow your portfolio then you have to experience (and take advantage of) these types of markets. You can see below the historical returns before and after inflation and taxes. Most people need the historical returns that stocks offer if they expect to accomplish their goals. With those returns comes volatility. They go hand in hand.

Source: Morningstar

Summary

Overall we feel optimistic about the global economy and markets. We believe that our disciplined process of finding fantastic businesses that we can buy at great prices will produce the results that you seek.

We truly do feel blessed and fortunate to have you as clients. You are trusting us with your financial future and for that we are grateful. We’ve said this many times, and will continue to say it (it’s on the home page of our website), “Our goal is to provide the services, transparency and results that we would want if our roles were reversed.”

Thanks again for your business,

Brian Hunsaker and Brett Pattison, Portfolio Managers, Iron Gate Global Advisors