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January 2016 QUARTERLY NEWSLETTER

Happy New Year! 2016 is here and if you blinked, it feels like we’d of missed 2015.

We believe 2015 will go down as a year when conventional diversification just flat out didn’t work. Warren Buffett, the well-known and often cited “Oracle of Omaha”, had his worst year since 2008 (down over 11%) and personally lost over $11 billion dollars. {Source: Bloomberg.com} While Mr. Buffett certainly isn’t signing up for unemployment benefits, his Berkshire company is very diversified and it is an example of the pain felt throughout the markets and by many investors. Last year saw the Energy, Materials, and Utilities sectors all down double digits while Technology, Health Care, and Consumer Discretionary were all very positive. The S&P, Dow, Russell 2000, Commodity, Emerging Markets, and All-World Stock indices’ were all negative on the year. {Source: Interactive Data} So, unless you were dead on with not only where you were invested, but also where you didn’t invest, it was a difficult year and reminded us that markets don’t just go UP as they mostly have for the last 5+ years.

Taking a step back and a broader view, we firmly believe that 2015 was a year of transition amidst a global economic backdrop that could be more structurally different than perhaps any period in the modern market era.

If nothing else, last year reminded investors in global markets that risk happens quickly. We see many cross currents now present in the increasingly connected global economy as various areas of the world are at vastly different places in regard to their own economic cycle. The U.S. has been comparatively strong for a few years now as the bull market plowed higher before stalling this year. We believe improvements in the labor market and decent consumption have helped offset recent weakness in both energy and manufacturing. In addition, large American multi-nationals are continuing to struggle for what we believe to be weak demand overseas and the negative impact on foreign earnings caused by a strong USD. In our opinion, consumption is unlikely to accelerate much further in the near term unless we get sustained wage gains, the kind not seen in the current economic cycle. We believe energy and manufacturing will continue to struggle due to low oil prices and reduced capital various countries have to spend on U.S. goods and services.

Disclosures: The information provided in this paper is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment,

legal or tax advice. Capital Investment Advisory Services, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of or reliance on the information. This information is subject to change and,

although based on information that Capital Investment Advisory Services, LLC considers reliable, it is not guaranteed as to accuracy or completeness. Source information is obtained from independent financial data supplies. Past performance is no guarantee of future

results. Securities offered through Capital Investment Group, Inc. Advisory services through Capital Investment Advisory Services, LLC 100 E. Six Forks Rd, Ste 200, Raleigh, NC 28609 919/831-2370 Member FINRA/SIPC

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In our opinion, the following factors are now firmly reshaping the landscape in the global economy and also changing the risk dynamics in all types of portfolios:

Technological advancements are making it difficult for companies to raise prices in both the consumption and production side of the global economy. Shoppers worldwide are increasingly able to buy cheaper items online while advancements in automation and the ability to more cheaply produce have impacted earnings for both the manufacturing and energy sector across the globe. We expect this trend to continue and that innovation will ultimately trump convention in the long term.

China continues to drive both the global economy and markets as more countries around the globe are now more closely connected to China than the United States in terms of trade. The Chinese population is aging at the same time that the cost of labor is rising as compared to other countries throughout the world. Policy makers in Beijing have now decided to continue opening up select areas of the economy while looking to export capital in order to promote trade with regional neighbors in order to become less economically connected to the western world. Going forward, we believe China is going to be far less beneficial for many trade partners than in years past as the nation is moving to compete with various other nations and as such, we believe could continue to promote the type of global deflation that has continued to plague the world in recent years.

While there are many other factors, it is our opinion that technology and China are and will be playing an increasingly significant role in all investment portfolios going forward. We are pleased with our client’s relative performance last year due to our diligent in-house research that closely follows the impact of things such as the ones mentioned above.

Focused on 2016, we are continuing to stick with our current feelings regarding U.S. stocks and select global equities while looking to potentially become increasingly defensive if uncertainty in the global markets translates into justifiable panic. We are actively looking for truly diversified sources of yield in order to try to both add value in fixed income and diversify downside risk in stocks and other assets.

SO…“What gives and why do we diversify investments again?”

A very logical and pragmatic question that we’d answer with something to the effect of last year not being the next 10, 20, or 30 years of investment performance nor encompassing your entire financial journey of life. We equate this thinking to the “recency effect”…what’s happened most recently will always be. This thought process with investing is given extra ammo every second of every day with the never before experienced access to information and opinions (whether legitimate or just some guy with a blog) via the internet as well as scars left from what happened during the ’08 – ’09 financial crisis. We’re also reminded almost daily that this thought process is flat out wrong as it’s centered around market timing and investment decisions being made based on emotions instead of cold, hard facts and personal financial goals. Timing and emotions may work

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over a short span of time…but over your financial journey of life, we’ve seen them proven wrong time and time again as effective decision making tools.

Our mission is not just to grow capital over time but we also strive to protect it along the way and to keep our clients focused on the big picture instead of falling into the “recency effect” emotional trap. Risk management and full transparency are the two traits that embody our philosophy and we are always here for when you need us or just want to chat about whatever is on your mind.

As always, we appreciate the opportunity to serve you and look forward to many more great years together.

Thank You,

J. ANDY INGRAM

Disclosures: The information provided in this paper is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment,

legal or tax advice. Capital Investment Advisory Services, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of or reliance on the information. This information is subject to change and,

although based on information that Capital Investment Advisory Services, LLC considers reliable, it is not guaranteed as to accuracy or completeness. Source information is obtained from independent financial data supplies. Past performance is no guarantee of future

results. Securities offered through Capital Investment Group, Inc. Advisory services through Capital Investment Advisory Services, LLC 100 E. Six Forks Rd, Ste 200, Raleigh, NC 28609 919/831-2370 Member FINRA/SIPC