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Re: PCI Overview of 4th Quarter, 2019 Dear Pacifica Client, While Pacifica Capital Investments reports quarterly results, we do so with reluctance. Our focus is on generating long-term results, and our belief is that short-term performance is not meaningful. As demonstrated in the graph on page 7, PCI’s long-term, aggregate results continue to be very rewarding for our clients. Overview During 2019, Pacifica accounts posted a gain of 14.8%, an attractive return in most years but one that fell well short of the S&P 500 Total Return Index’s record gain of 31.5%. Looking at the long-term, Pacifica has outperformed our benchmark by a significant margin. Since inception in 1998, Pacifica has generated a total return of 788.8% against the S&P’s 343.4% gain. We continue to expect to outperform our benchmark over the long term and more so in periods with volatility. Those periods when market weakness appears periodically allow us to “buy low” and later “sell high”. This is when our clients typically see the strongest relative outperformance. Market volatility has been unusually low since the onset of The Great Recession, after which the longest Bull Market in history began. With the stock market currently at historic highs, weakness could return at any time, and we are prepared for that to occur. In the fourth quarter, we continued to implement our strategy of purchasing undervalued assets and selling holdings trading at prices above our estimate of intrinsic value. Additionally, we continue to closely monitor a select group of excellent businesses where we want to aggressively purchase shares when they trade at more reasonable valuations. Activity and Positioning (Note: Pacifica manages accounts on an individual basis. While commentary in this letter reflects aggregate metrics, individual results and positioning may vary based on when accounts were opened and other factors.) During the fourth quarter, we were net buyers of securities as we added to our holdings in seven positions and sold out of two small ones. During the last three months of the year we added shares of: Five Below (FIVE), Nordstrom (JWN), Fairfax Financial (FRFHF) and Fairfax India (FFXDF), Designer Brands (DBI), L Brands (LB), and Alliance Data Systems (ADS). Additionally, we sold out of our position in Dick’s Sporting Goods (DKS) and Spectrum Brands (SPB), a spin off from our position in Jefferies Financial Group (JEF) that we did not directly purchase. Total returns generated by those latter two positions we sold during our brief ownership period were substantial. At year’s end, we held meaningful positions in thirteen securities. In aggregate, Pacifica accounts held roughly 23% of portfolio assets in cash (excess cash is held in money market funds that are currently yielding approximately 1.6%). 3550 Lakeline Blvd., Ste. 170, #1715 • Leander, TX 78641 Ph (858) 354-7180 • Ph (512) 310-8545 • Fax (888) 302-3545 www.PacificaCapital.Net Key Issues Our focus is on buying high-quality businesses that can succeed in any foreseeable economic environment. While we do not base investment decisions on macro factors, we keep our eye on certain indicators to inform our understanding of the risk/reward prospects of the investment environment in which we are operating. While many economic indicators turned positive during the 4th quarter of 2019, we continue to be wary of risks in the marketplace. These include: A. Elevated Valuations – Multiple Expansion Drives 2019 Gains – The S&P 500 index is currently trading at about 18.2 times forward earnings estimates for the next twelve months. Notably, in 2019 corporate profits only increased 0.4%. The market’s gains were almost entirely driven by expansion of the price-to-earnings multiples investors assigned to businesses. For a business to be worth a higher multiple to earnings, it either must grow earnings at a higher rate, or the rate used to discount its future cash flows must be reduced (discount rates, which are largely determined by interest rates, represent opportunity cost and are a useful component to consider in valuing assets). We do not see any evidence to suggest that growth prospects for American businesses have improved dramatically relative to historical norms. On the contrary, we think it is more likely that the long-term future rate of growth in U.S. GDP will be lower than the historical rate of growth. Meanwhile, as discussed above, interest rates continue to be well below historical norms, thus lowering the discount rates investors use in valuing businesses. This furthers our suspicion that this year’s gains in the stock market were driven more by financial engineering than real productivity improvement. B. Interest Rates – Yields Remain Low Despite a Strong Economy; The Yield Curve Normalizes – In late October, the Fed cut interest rates for the third time in 2019. This easing came against the backdrop of an economy with historically low unemployment, record high retail sales, 2%-plus GDP growth, and the stock market at record highs. We are concerned that the market appears to be overly-reliant on the role of the Fed in driving asset values. Furthermore, we are concerned about the unintended consequences and unknown risks that may emerge as a result of years of accommodative monetary policy. After being inverted since mid-March, the yield curve normalized in October, as short-term rates fell due to dovish Fed policy and long-term rates subsequently rallied on positive global 2 economic news. As discussed in past letters, an inverted yield curve is widely regarded as a negative economic indicator, as one has preceded each recession since the end of World War II. While the recent normalization of the yield curve indicates improving sentiment about the direction of the economy, it does not necessarily mean the risk of an imminent recession has dissipated. For example, the yield curve inverted in 2006, only to normalize in 2007, just prior to the 2008 recession. C. Elevated Public and Private Debt Levels – As discussed in prior communications, debt levels in both the public and private sectors remain elevated. We view this issue as being inextricably linked to easy monetary policy, as low interest rates encourage borrowing. We are very concerned about the risks associated with excessive debt levels as cheap credit compresses risk premiums, allowing riskier borrowers easier access to credit. Moreover, we are concerned about the ability of certain governments and businesses to continue to meet their obligations in a more historically typical (i.e., higher) interest rate environment. Investments Our objective is to buy businesses for less than they are worth and hold them for the long-term. Ideally, we want to own businesses with strong cash flow, good returns, and opportunities for growth, allowing us to benefit from the compounding benefit of reinvesting cash back into the business over time. 3 We view our investments as broken down into three categories: A. Growth companies that earn high returns on incremental invested capital and have long runways for growth. These “compounders” generate large amounts of cash from their core business and have ample opportunities to reinvest that cash in other high return endeavors. For these businesses, we are willing to pay seemingly high prices and build large positions so long as we are highly confident in their future growth prospects and believe that the discounted value of future cash flows justifies paying a high multiple to current earnings. B. First class businesses that earn high returns on equity but don’t have an abundance of reinvestment opportunities in their core businesses. This group of “stalwarts” typically consists of large, established businesses. We are perfectly happy to own these types of businesses so long as a) they have a durable competitive advantage that will protect their economic franchise over the long-term, b) they have high quality management teams that have a proven track record of shareholder-friendly capital allocation policies, and c) we can buy them at a fair price relative to intrinsic value. We are willing to build large positions in these businesses depending on how attractive we think our entry price is. C. Good businesses with solid returns on equity and competitive positioning that are experiencing short-term issues causing their stock prices to trade at low levels. This group is comprised of “value plays,” where we are buying businesses that are not as high quality as those in the first and second group but are still attractive businesses that we are happy to own. With businesses in this group, we tend to take smaller positions and consider price as a more important factor in order to build a margin of safety into our investment. We are also very focused on the quality of management and its capital allocation policies when investing in businesses in this group. The below chart shows our investments by group (note: this list includes investments that in aggregate are over 1% of assets under management): Group A: "Compounders" Group: B "Stalwarts" Group C: "Value Plays" Alphabet (GOOG) Berkshire Hathaway (BRK/B) Alliance Data Systems (ADS) Five Below (FIVE) Fairfax Financial (FRFHF) Designer Brands (DBI) Goldman Sachs (GS) Fairfax Africa (FFXXF) Starbuck (SBUX) Fairfax India (FFXDF) Nordstrom (JWN) Jefferies Financial Group (JEF) L Brands (LB) While our preference is for our portfolio to be concentrated in our best ideas in Group A or Group B, the current marketplace has presented us with more opportunities in Group C. That allocation has emerged because most very high-quality companies and growing companies are trading at what look like excessively high valuations. Recent Purchases During the quarter we predominantly added to our positions in the retail sector that we have discussed previously.

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