Keep Calm and Carry On Exiting the first half of 2018, the Capital Ideas Fund is up 4.40% 1 for the year which is more than double the 1.95% 2 return for the market. We ’ re fairly happy with this outperformance since there were some volatile trading sessions and erratic swings in investor sentiment. Currently, we believe the influence of short- term thinking on the market has never been stronger. Increasingly people trade day-to-day, if not minute-to- minute. Even though we’ve never met anyone who can do this consistently well, as access to information becomes ever more accessible and attention spans ever shorter, it ’ s no wonder people expect daily gratification, especially when the media feeds it to them. In other words, short- term thinking has a death grip on the market. The rest of this newsletter aims to put investing into perspective, looking past the daily headlines and focusing on real value creation and long term performance, a perspective that seemingly puts Donville Kent in the minority. The Voting Machine It’s often repeated that investing is more of an art than a science . A large majority of the day-to-day market fluctuations are driven by emotion, which makes sense because a company’s underlying fundamentals don’t shift day -to-day like their stock price does. There is a lot of human psychology at play in the short-term, meaning that there is therefore a lot of unpredictability at play. Human characteristics like fear, greed, anticipation, confidence, optimism and pessimism all come into play on a daily basis. This is why some people categorize investing as an art form. Investors feel that their gut, know-how, or intuition is what makes them successful. But is it really these intangibles that make a successful investor? If this were true, it would suggest that, like art, VOLUME XVIII July 2018 INVESTMENT ISSUES • STRATEGIES • INSIGHTS FROM DONVILLE KENT

2 ROE REPORTER | DKAM investing is subjective and driven by feelings and opinions. However, when you look at your year-end investment statement you don’t care about feelings or opinions. You can objectively do some easy math and definitively see whether we’re good investors or not. When it comes to investing, we would argue that the math is a lot more important than the “art , ” but again this probably puts us in the minority. Benjamin Graham captured the topic perfectly 3 ; “In the short run, the market is a voting machine – reflecting a voter- registration test that requires only money, not intelligence or emotional stability – but in the long run, the market is a weighing machine.” What happens in the market during earnings season is the epitome of what we’re trying to illustrate. Every three months, public companies release their financials for the trailing quarter and maybe have a conference call. This gives the public a snapshot of the past historical health of the business and possibly some commentary about the future. Without fail, there is always heightened volatility around these press releases as traders and the financial media make mountains out of mole hills. It’s hard to fault them for it because their livelihoods depend on news flow and stock price volatility. However, for investors like us who care about the fundamentals, this process and volatility can be frustrating. The best example is one of our largest investments and top picks, Tucows Inc. Recently, Tucows reported earnings that “missed” analyst estimates and the stock reacted violently. Take a look at the Bloomberg headline from that day. How did we see their earnings for the quarter? We calculated a 36% annualized return on equity! We would take the tradeoff of missing an analyst’s educated guess for a 36% ROE every time, but the emotional voting machine of the market punished the stock that day. Now this wasn’t the first time Tucows has missed earnings expectations. Over the course of the last year and half they have missed anal ysts’ earnings every single quarter and – guess what – the stock is up 73% over that time with an average reported ROE of 45%. The point being, we think the market focuses on the pennies and loses sight of the dollars. To reinforce this idea, take a look at the accompanying charts which show multiple quarters of stock performance from Tucows (TC), Boyd Group (BYD-UN), and Constellation Software (CSU).