Double Goal Coach In the first quarter of 2015, The Capital Ideas Fund and Capital Ideas Trust were up 12.50% 1 and 12.47% 1 respectively. As we enter the second quarter, the portfolio continues to perform well, but our sense is that storm clouds are on the horizon. As such, we are holding relatively high cash balances and have recently increased the size of our portfolio protection. As many of you are aware, a few years back we lightened our positions in commodity-related stocks and began increasing the number of positions we own in knowledge-based industries (pharmaceuticals, software, IT services, etc.) Most of those investments have performed exceedingly well, but, as a result, many of these stocks are trading at valuations with which we are uncomfortable. As such, market valuations in general, and the valuations of the kinds of stocks that we like to own in particular, are making us nervous. Offsetting this concern about market and stock-specific valuations is the reality that interest rates remain very low and inflationary concerns are virtually non- existent. Deflation is therefore probably a bigger issue, and the global economy may very well be in for a sustained period of low growth. If we are in fact entering a sustained period of low global economic growth, then valuations may indeed get richer. I won’t bore you with the financial mathematics here, but suffice it to say that a risk-free rate of less than 2% could result in market valuations of 25x-40x. These kinds of valuations make me nervous, but I want you to know that I will do my best to negotiate this valuation landscape on your behalf by focusing on companies that deliver enduring returns on capital and which are run by people who are both competent and honest. The things you can learn from 9 and 10 year old boys Each year, sometime around the end of January or early February, I begin to think about lacrosse. I have played lacrosse since I was six and I continue to play to this day. I am also a lacrosse coach and have been so for close to fifteen VOLUME XXXI APRIL 2015 INVESTMENT ISSUES • STRATEGIES • INSIGHTS FROM DONVILLE KENT

2 ROE REPORTER | DKAM years. My bookshelf is full of books, manuals, and videos that I have studied that focus on various parts of the game. There is only one book however, that I re-read each spring. The best book on coaching that I have ever read was written by Jim Thompson, an academic at Stanford University: The Double-Goal Coach: Positive Tools for Honoring the Game and Developing Winners in Sport and Life . The book claims to present the best-practices of elite coaches and the latest research in sports psychology. In my words, the book examines the trade-offs we think we need to make between winning and being a positive and ethical coach. I started coaching lacrosse in 2000 in Calgary. I think I did a decent job in my first couple of years coaching 7-and 8-year-olds, but if I had one major flaw, it was that I was prone to being too intense, and indeed angry. I think I really wanted to be a great coach, but, like many young coaches, I was too focused on winning. In my third year of coaching, I found myself in the following situation. I was coaching Novice lacrosse (age 9-10), and our association, the Sabercats, had enough players for 12 teams. The problem was that the head of the association was also coaching in this age group and he assigned the best 15 players in the association to the team he was coaching, randomly distributing the rest of the players to the other 11 teams. Like most of the other 11 coaches, I was furious. In my rage, I turned to my two assistant coaches and said in a seething voice “We may not win a game, but we are going to teach these kids everything we know about lacrosse. A nd because it’s unlikely that we are going to win many games, we are going to be as positive as possible with these kids.” So, I wasn’t going to focus on winning because we had no hope of winning. The cycle would be that we would teach, then praise, then teach, then praise, teach, praise, etc. But this approach was not coming from an enlightened perspective. I felt that I had been screwed by the head of the association, and so I gave up on the prospect of winning. In a sense, I was quitting on my team without telling anyone. But I would teach these kids how to play lacrosse. I knew how to do that, and now that the pressure of winning was out of the way, I would just stay as positive as possible. And then we won our first game. I think the score was 3 to 2. And then we won our second game. It wasn’t a pretty win, we dropped a lot of passes, but all of this positive reinforcement stuff was really starting to feel good. Then we won our third game. I think we lost our fourth, but the kids played really well, so it felt like a win. And then we went on a really long winning streak. And we never let up with the positive reinforcement; in fact it gained momentum. We coaches laid the praise on so thick that it might make a casual

3 ROE REPORTER | DKAM observer cringe, but you could see the kids loved it, and the coaches loved coaching this way. Three months later, we found ourselves in Edmonton playing for the Provincial Novice Lacrosse championships alongside the four other best teams in the province. Wow! We didn’t win the gold medal, but in a sense we had become winners somewhere along the road to Edmonton. The following year I discovered Jim Thompson’s book, and it resonated with me in a very profound way. His central thesis is that great coaches can and should be teachers and positive motivators, and that this is the key to winning championships. A bunch of 9-and 10-year-olds had already taught me that the previous spring, and Thompson’s book went on to explain why this approach to coaching works and why elite coaches like Phil Jackson coach this way. It also gave me some great ideas of how to be an even better coach than the one I had learned to be the year before. Warren Buffett – A double goal coach for the ages Warren Buffett is the greatest long-term investor in history. His 50-year track record is an accomplishment that I doubt will ever be replicated by another professional investor. Over the past 50 years, the book value per share of Berkshire Hathaway has grown at a compounded annual growth rate of 19.4% 2 while the market value of the Berkshire stock has grown at a rate of 21.6% 2 per annum. The market over that same time period has grown by only 9.9% 2 per annum. At the same time, Buffett has been the most watched, followed, and scrutinised investor of all time. Throughout this scrutiny, his reputation has been sterling. There have been iconoclasts who have tried to nit-pick his conduct, but given the scale of his activities, it is amazing to see just how little has stuck. This is not because he’s good at dodging bullets, either. I think his secret is really simple. I think for Buffett, acting virtuously is not an obstacle to being a great investor; it is why he is a great investor. In the most recent Berkshire Hathaway annual report (which I strongly recommend that you read), Buffett reflects on his 50 years running what was once was a small, New England based textile company. Starting on page 24 of the report, Buffett recounts how he came to buy a control position in Berkshire Hathaway, the impact that Charlie Munger had on his investment approach, and a few of the more interesting investments he has made over the years. Being Buffett, he is quick to chide himself for the investments that in hindsight did not work out, while being quick to credit Charlie or other members of the Berkshire team for investments that have worked out well, in some cases spectacularly so.

4 ROE REPORTER | DKAM On page 39 of the Berkshire Annual Report, Charlie Munger discusses the past 50 years at Berkshire. This section of the report is largely an encomium to Buffett. Munger is not as colourful a writer as Buffett, but his thoughts confirm the extent to which Buffet’s ethics were not a restriction under which he had to operate, but instead were actually the underpinnings of his success. On page 40 of the report, Munger writes the following: What was Buffett aiming at as he designed the Berkshire System? Well, over the years I diagnosed several important themes: 1. He particularly wanted continuous maximization of the rationality, skills, and devotion of the most important people in the system, starting with himself. 2. He wanted win/win results everywhere – in gaining loyalty by giving it, for instance. 3. He wanted decisions that maximised long-term results, seeking these from decision-makers who usually stayed long enough in place to bear the consequences of decisions. 4. He wanted to minimize the bad effects that would almost inevitably come from a large bureaucracy at headquarters. 5. He wanted to personally contribute, like Professor Ben Graham, to the spread of wisdom attained. As I reflect on Munger’s comments, two things emerge. First, I see a rational investing framework focused on the enduring qualities that exist in great enterprises. Second, I see an emphasis on fairness, decency, loyalty, optimism, education and teaching. Investment excellence wasn’t restricted by the pursuit of these ethical goals. Investment excellence was created by the pursuit of these ethical goals. Buffett is a double goal coach for the ages, and a hero of mine. A few final thoughts on Double Goal Coaches Both Jim Thompson’s book and the life and times of Warren Buffett are very inspiring to me. I am not perfect, but having gold standards is important to me, and the idealism I have derived from both Thompson and Buffett motivate me as I approach the challenges of each day. Apart from Buffett, there are a few other double goal coaches in my life. You have them too. Try to think of someone you know who lives or has lived a virtuous life and who is also really good at what she or he does. It could be a parent, a coach, a boss, a public figure. Once you have identified that person, study her or him closely, adopt their behaviors and attitudes as best you can,

5 ROE REPORTER | DKAM and, as you begin to really understand what winning is all about, tell the world. Buffett has been doing that for more than 50 years, and I hope he never stops. Final Thoughts The Capital Ideas Fund and Trust are now closed to new money, but I still tap dance to work every day. I love my job and hope to be doing it when I am 84, just like Warren Buffett. I should also say that, while I have made some pretty decent stock picks over the years, those picks pale in comparison to my decisions to hire Jordan, Ali, Jesse, Chris, and Dominika. Thank you for all the things you do for me and for our investors every day. Call me or write me if you want to chat – J.P. Donville Jason@donvillekent.com - 416-364-8886 1 Time weighted rates of return for Class A Series 1, net of all fees and expenses 2 Berkshire Hathaway Inc. 2014 Annual Report DISCLAIMER Readers are advised that the material herein should be used solely for informational purposes. Donville Kent Asset Management Inc. (DKAM) does not purport to tell or suggest which investment securities members or readers should buy or sell for themselves. Readers should always conduct their own research and due diligence and obtain professional advice before making any investment decision. DKAM will not be liable for any loss or damage caused by a reader's reliance on information obtained in any of our newsletters, presentations, special reports, email correspondence, or on our website. Our readers are solely responsible for their own investment decisions. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase or sale of securities. Our opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. All information contained in our newsletters, presentations or on our website should be independently verified with the companies mentioned. The editor and publisher are not responsible for errors or omissions. Past performance does not guarantee future results. Unit value and investment returns will fluctuate and there is no assurance that a fund can maintain a specific net asset value. The fund is available to investors eligible to invest under a prospectus exemption, such as accredited investors. Prospective investors should rely solely on the Fund's offering documentation, which outlines the risk factors in making a decision to invest. The S&P/TSX Composite Total Return Index ("the index") is similar to the DKAM Capital Ideas Fund LP ("the fund") in that both include publicly traded Canadian equities of various market capitalizations across several industries, and reflect both movements in the stock prices as well as reinvestment of dividend income. However, there are several differences between the fund and the index, as the fund can invest both long and short, can utilize leverage, can take concentrated positions in single equities, and may invest in companies that have smaller market capitalizations then those that are included in the index. In addition, the index does not include any fees or expenses whereas the fund data presented is net of all fees and expenses. The source of the index data is S&P/Capital IQ. DKAM receives no compensation of any kind from any companies that are mentioned in our newsletters or on our website. Any opinions expressed are subject to change without notice. The DKAM Capital Ideas Fund, employees, writers, and other related parties may hold positions in the securities that are discussed in our newsletters, presentations or on our website.