Fourth Quarter: october, 2014 “Gating” Factors:

A “Gate” sure isn’t what it used to be. Back in the day, we had Watergate: the mother of all “gates” from which the term was coined to connote a scandal of epic proportion… you know, the kind of thing that could lead to a Presidential impeachment or resignation.

A dozen years later we had “Contra-gate,” (1986) otherwise known as the Iran Contra Affair, and then, a dozen years after that we had another well known “affair” of state known as “Monica-gate” (1998). Both of these events evidently happened right under the sitting Presidents’ noses, so to speak.

Since that time, the currency of the term has become systematically overused and

T h e Q u a r t e r l y C o m m e n t a r y o f J u r i k a , M i l l s & K e i f e r L L C

In this issue:

Gating Factors

Current Investment Strategy

Summary:

• Investors are having a sudden crisis of confidence about global growth, geopolitical risks, and Ebola, sending equity markets into a long-awaited correction. It must be October.

• U.S. economy remains a bright spot in global economy, solid and improving. Elsewhere, growth rates are slowing or turning negative. Europe, in particular, is back on bed rest. It remains to be seen if this is a temporary phenomenon.

• Markets remain fully priced,

especially in U.S. but pockets of value are emerging. Developing/Emerging markets look especially attractive for longer term equity investments. Bonds continue to look unattractive other than as a safe haven.

• We continue to balance investments targeted at areas of long-term growth with a strong “defensive core” of alternative and defensive strategies, and a foundational base of bonds and cash.

© 2014 Karl O. MillsMills

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devalued to describe any event that has even a whiff of sensationalism, from Janet Jackson’s “Nipple-gate” at the 2004 Superbowl, to Anthony Weiner’s “Weiner-gate” in 2011, and Chris Christie’s “Bridge-gate” last year.

The most recent examples this year are “Intruder-gate,” involving a breach in White House security but no malfeasance by the President himself; and “Bend-gate,” involving Apple Computer’s new iPhone 6 Plus. It turns out that if you take an ultra-thin and light piece of aluminum and glass technology, put it in your pocket and sit on it with all your weight, it just might bend. Go figure. Then if you post your bent phone on YouTube, you might actually take your misfortune viral and create a media frenzy that causes millions of other Apple stock owners, most of whom love their iPhones and have no intention of sitting on them, to take leave of their senses and sell their stock. This should never have been a news story, let alone a “gate” but it temporarily resulted in Apple’s stock losing several billion dollars of market value.

The point of this is that we have taken the “gate” to the point of triviality, or even worse, where we are creating scandals where none exist: looking for and finding trouble in all the wrong places; blowing news stories out of context and proportion and often making bad choices based upon this faux reality. At the same time, we are allowing all the “gates” and the flood of trivial information to crowd out the stories, events and trends that may seem distant or unimportant at present, but may actually prove to be significant over time. Africa has been wrestling with the Ebola crisis for over a year, where thousands have been afflicted, but it is only when the media decides to fill the screens with a few people in Haz-mat suits in Texas that we take notice.

We have also made it is easier than ever to act upon this information in the moment, with a click of a mouse or a swipe of your hand; to assuage your immediate fears, to satisfy a greedy impulse, or to create a feeling of action and empowerment. And there are thousands of new investment products and services available to help you out with this grave new world, including apps and programs to allow you to track performance by

the minute and dispatch “investment advice” with buy and sell recommendations throughout the course of the day.. “If possible, make a U-turn...Recalculating....” Really?

You can invest in literally thousands of different Exchange Traded Funds (ETFs) and other products, one more specialized or complicated than the next, each designed to address a different need in the marketplace. There are ETFs that offer broad exposure to global markets. There are ETFs that offer exposure to almost any type of company – technology, biotechnology, industrial stocks that begin with the letter “P” - or any country or geographical region. There are ETFs that allow you to take bets, with leverage, on markets going up or down. There are ETFs that allow you to hedge currencies, make bets on commodities, or capitalize on the latest fads and trends such as water, shale gas, and electric cars.

If you can think of an itch to scratch, there is probably an investment product that has been developed to help you scratch it. Individually, some of these can be quite useful, but most of them are products designed to be sold and generate fees for their creators. Collectively, they can be overwhelming and, if used improperly, they can be debilitating or even dangerous.

It’s a bit like walking through the home remedy section at Whole Foods. You are overwhelmed by a vast array of bottles and boxes that stretch down the aisle to both sides. Each one claims to address some vital unmet need with miracle ingredients; to fortify your immune system with essential oils and karma; to align your spleen with the universe and balance your digestive processes with enzymes and unicorn tears. Some of them are very good, but you know that if you take all of them, you are probably going to get really sick.

Mostly, what you know is that good health starts with some timeless and rather simple principles practiced over a long period of time including a healthy and balanced diet, exercise and sleep. Everything else is supplemental at best, and meaningless or detrimental at worst.

The same is true with investing. Good portfolio

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Source: J.P. Morgan and Jurika MillS & keifer

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management starts with owning a well-diversified and balanced portfolio of high quality assets and sticking with them - not getting caught up in the noise of the moment and constantly putting your portfolio on the latest fad diet.

One of the most common questions we hear from clients and friends, usually after hearing a troubling prediction on TV or the radio is “Do you think there is going to be a correction and should we sell?”

Our response is almost always, 1) yes and 2) no.

In fact, we are actually certain that there will be many corrections in the years to come. They are a normal and healthy function of the ebb and flow of economies and markets.

As (Chart I) to the right shows, over the last 34 years alone, a period which includes the 1987 crash, the “dot com” bubble and bust, and the recent credit crisis and “great recession,” the market posted a positive return in 26 out of the 34 years, generating a cumulative return of over 1,600% and an average annual return of 8.7%

Yet, there were corrections in every year and 19 corrections of 10% of more. In 13 of these years, the market actually ended up posting a positive return for the year.

If asked, most people would call themselves “long-term” investors, who have investment time horizons of 10 years and longer. Yet investors persistently are driven to react to short-term market conditions to the detriment of their long-term interests.

There have been many studies that show that investors tend to earn a fraction of the returns of the funds in which they are invested because they fail to stick with them through a full market cycle. Instead, they tend to jump ship

at the first sign of trouble, or soon thereafter, selling the funds during inevitable periods of underperformance and piling into funds with the greatest recent outperformance; perennially selling low and buying high.

And this bad behavior is only encouraged by the proliferation of hyperbolic media coverage and opinion, inflating the latest news story to fill the space and make you feel like you should be doing something other than getting on with your life and letting your portfolio do its thing.

It is a particular paradox and challenge of the era in which we live today that we can check on our investments every second of the day, and yet we are invested in a process that is inherently long-term in nature. We say we are long-term focused, but we are conditioned to crave instant feedback and gratification, and, as Carrie Fisher quipped, even that takes too long. If something is not working, sell it and buy something that is. If a talking head predicts a correction or crash, sell. If another talking head predicts a rally, buy. It’s easy. Just swipe your finger on your mobile device and you can realign your entire portfolio just like that.

Technology makes many wonderful new things possible, but just because you can do something,

even easily, does not mean you should.

It is therefore more important than ever to lean away from the “gates” and the noise and the sensation, and anchor yourself to a set of simple, timeless, fundamental ideas:

First, although we have been conditioned to think of financial markets as things unto themselves, like casinos full of lights and noise where prices and fortunes can move wildly around from moment to moment, financial markets actually represent real capital ownership in real assets and enterprises. If you own stock either directly or through a mutual fund or ETF, you have real ownership in real businesses. While stock prices may move around in the short-term, they will ultimately reflect the fundamental value and growth of the underlying businesses they represent.

Second, take a balanced approach, own a well-diversified set of quality investments and stick with them. Every asset class goes through periods of outperformance and under performance. Often the asset class that is the top performer this year, will be the dog next year, and vice versa. A well-diversified portfolio, comprised of multiple asset classes has tended to yield very good results over time with a relatively low level of volatility.

Third, take a long-view and tune out the short-term noise and nonsense. Imagine that you have to take your investments and lock them away for five years without an ability to touch them. Step back and think about the world, the areas of growth and change in which you want to be invested, the areas of longer term challenge that you want to avoid, and pick your investments accordingly. Understand that things won’t play out exactly as you imagine and stay diversified enough to protect you if you are wrong.

Fourth, leave it alone and let it work, unless there are material changes to your long-term view and circumstances, or there are significant problems with an individual investment. Let the miracle of compounding work for you rather than against you. Moves to time the market declines almost always backfire. It is easy to sell, and hard to

buy back. Most investors tend to sell after the market has already experienced the majority of its decline, and then miss out on the subsequent rebound, only buying back after the market has retraced most if not all of its loss. In taxable portfolios, investors pay an additional penalty for selling, realizing taxable gains, unnecessarily, further diminishing their performance.

Finally, if you buy an expensive and delicate piece of technology, try not to sit on it, and, if you do, don’t act surprised if it bends.

Investment Strategy:

The U.S. economy remains the brightest spot in the global economy. It is still showing solid growth and improvement in most sectors and even employment has made enormous progress with the unemployment rate falling below 6%. U.S. companies remain in good shape and there is a healthy level of mergers and acquisitions activity as companies find value in buying other companies.

Europe is still suffering from the economic equivalent of walking pneumonia, and appears to be having a relapse, as near-term economic indicators show growth slowing down and confidence dropping. It remains to be seen if this is temporary and whether the European Central Bank can restore confidence and growth. One bright spot for Europe is that the bad news is widely known, expectations are low, and there is a lot of room for improvement.

The growth rate in the emerging/developing economies is also slowing but is still positive.

As of this writing, global stock markets are experiencing a long-overdue correction. We have no idea how long the correction will last but actually think that this is normal and healthy for the financial markets to wring out some market excesses, and reset valuation levels to a more reasonable level.

Stocks are fully priced, especially in the United States, but there are pockets of value present, and more by the day. We think that developing/emerging markets look cheap. We continue to

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find bonds expensive and unattractive for long-term investment.

The next real test for the financial markets will be third quarter corporate earnings reports, as managements report quarterly earnings and provide their outlook on the global economy.

While there are a number of clouds currently weighing on the markets, none of which are trivial, it is actually healthy that investors are worrying about them and factoring them into asset prices.

At the moment, we think that things are better than the market currently wants to believe. And, as we look out over the next five years, we continue to believe that world economies will grow and that global equities are the most attractive asset class to own for long-term investors.

As always, we welcome your questions and comments.

Jurika, Mills & Keifer, LLCOctober, 2014

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Important DisclosuresOpinions expressed are those of Jurika, Mills & Keifer, LLC, and are subject to change.

Investments in securities involve the risk of loss. There can be no assurance that investment strategies referenced will be successful, or that investment objectives will be achieved. Past performance is no guarantee of future results.

This communication is neither an offer to sell nor the solicitation of an offer to buy a security or advisory services, which can only be made by the appropriate offering document.

Jurika, Mills & Keifer is registered with the State of California.

Jurika, Mills & Keifer is a private wealth management firm, providing investment advisory and counseling services to a select group of individuals and families.

Our firm is built on a core set of values and investment principles that have been central to our identity and success for more than a quarter century.

Our objective is to preserve and build the purchasing power of our clients’ capital over time through forward-looking investment management and effective financial planning.

We think for ourselves and are often willing to challenge conventional wisdom and practice. In our experience, unconventional wisdom often leads to uncommon opportunity.

Our offices are in San Francisco, California. We welcome your inquiries.

Jurika, Mills & Keifer, LLCPrivate Investment advisorsOne Ferry Building, Suite 255San Francisco, California, 94111415-677-5430 PHONE

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