a few years ago, i was dining witha very successful portfolio manager when wehad a chance encounter with one of his clients.Interestingly the client’s first comment, evenbefore “Hello,” was “What’s going on with XYZ stock?” My dinner companion had been recommending XYZ for some time and its shareprice had just fallen significantly. I thought itwas a curious greeting, particularly given thatit was just one stock in a broad portfolio andthat this portfolio manager had delivered wonderful results over his long investment career.

Sentiment like this is not uncommon. In fact, itis akin to enjoying five courses of a six-coursemeal, but allowing the one course you did not enjoy ruin your entire dining experience. In a portfolio of many investments, investorsquite often focus on individual holdings thatare underperforming – regardless of the per-formance of the portfolio in aggregate. Whilethis behaviour is not necessarily logical, it isunderstandable. After all, an underperforminginvestment triggers a number of automaticemotional responses that have been wired intous over the course of evolution. Nevertheless,we think investors should try to keep thesereactions at bay and stay focused on the bigger picture.

The reality is every investor will own the occasional underperforming investment.Legendary investor Warren Buffett lost a significant amount of his savings in the early1950s by investing in a gas station. Even thecompany he runs, Berkshire Hathaway, is named after a New England textile mill that hebought in the 1960s, which Mr. Buffett laterdescribed as one of his worst investments.

Likewise, the OB Model Portfolio has held individual stocks that have underperformed.However, since its inception in 1994, the Modelhas generated a compound annual return thatis well in excess of the return achieved by theS&P/TSX Composite Index and more than double the return of the U.S. S&P 500 Index.These results highlight an important point: the occasional underperforming investmentdoes not necessarily prevent good long-termperformance.

It is also important to remember to avoid altering a proven investment approach simplybecause of a few unfavourable outcomes.Although we always strive to learn from pastinvestments, staying true to our disciplined,value-based approach has served us well overtime. Likewise, it is important to maintain a diversified portfolio as protection against theoccasional disappointment. The Model, forexample, typically holds 40-50 stock positions.We believe that this positioning is concentratedenough to benefit from the best performingstocks, but diversified enough to withstand theoccasional underperforming investment.

A simple truth of investing is that some individual holdings will not perform as expected.Don’t let the occasional disappointing courseruin your meal. By following a proven invest-ment discipline and maintaining a diversifiedportfolio, the long-term result should be quitepalatable.

stephen boland, cfaequity analyst

odlum brown limited trust • vision • investment integrit y

P L A T I N U M M E M B E R

Odlum Brown LimitedSuite 1100 – 250 Howe Street Vancouver BC Canada V6C 3S9 Tel 604 669 1600 Fax 604 681 8310Toll Free 1 888 886 3586

information@odlumbrown.com odlumbrown.com

Kelowna 250 861 5700Victoria 250 952 7777Chilliwack 604 858 2455Courtenay 250 703 0637Campbell River 250 286 3151

Member-Canadian Investor Protection Fund

inside this issue

Food for Thought

An Occasional Disappointment

Won’t Spoil Your Portfolio

> Page 1

OB Model Portfolio

> Page 2

Odlum Brown in the Community

> Page 4

july 2012>Food for Thought

An Occasional Disappointment Won’t Spoil Your Portfolio

o b r e p o r t

despite the plethora of gloomyheadlines and an overwhelming level of pessimism, the Odlum Brown Model Portfoliocontinues to make headway this year, rising fourper cent through the middle of June. This comparesfavourably to the two per cent decline of theS&P/TSX Total Return Index over the same period. Compared to a year ago, the Model hasgained seven per cent versus a nine per centloss for the Canadian benchmark index.

Almost half of the Model was invested in foreign-listed stocks, particularly U.S. multinationalcompanies, which helped our relative perform-ance. The Model also benefitted by being underweight cyclical, resource-geared stocksand overweight less cyclical businesses in theConsumer and Info Tech sectors.

Our strategy of buying businesses for less than they are worth provides the Model with amargin of safety and offers downside protection.Indeed, our value-driven approach and our willingness to differentiate our holdings from thebenchmark have helped us preserve capital during market corrections, leaving us with morecapital to compound wealth in better markets.Since its inception in December 1994, the Modelhas declined roughly half the amount of theCanadian benchmark during months in whichthe index declined.

The European financial crisis and fears of a hardlanding in China are affecting stock marketsworldwide. The flight to quality is driving U.S.interest rates lower once again, which benefitsconsumers and businesses. Furthermore, theeconomic headwinds in Europe and China havecaused a moderation in commodity prices. Whilethat is not good news for the resource-gearedCanadian stock benchmark, the Model ownsnumerous businesses that stand to benefit fromthe recent decline in commodity prices. In fact,we believe the U.S. economy as a whole will bea beneficiary of lower commodity prices as corporate profit margin pressure is alleviatedand consumers are left with more money in their wallets.

The daily gyrations of the stock market shouldnot be confused with the real performance ofthe underlying businesses. It is over a long timehorizon that the performance of a stock moredirectly reflects the performance of the business.Many of our investments’ underlying valueshave been growing significantly faster than theirrespective stock prices in recent years.Accordingly, the Model has pent-up potential.

Today, widespread fear and risk aversion is causing investors to place their cash on thesidelines and wait for a more certain outlook.We believe that is a mistake. Investors shouldbe taking advantage of the good prices thatexist as uncertainty clouds the market. AsWarren Buffett once said, “The future is neverclear; you pay a very high price in the stock market for a cheery consensus. Uncertaintyactually is the friend of the buyer of long-termvalues.”

> OB Model Portfolio

2 / ob report

3 month

-2.6%

-6.7%

-0.5%

1 year

7.3%

-8.6%

13.2%

3 year

12.0%

6.4%

11.8%

5 year

1.8%

-1.2%

-1.3%

10 year

9.4%

7.3%

0.7%

15 year

12.7%

6.1%

2.5%

14.7%

8.3%

6.5%

Odlum Brown Model Portfolio

S&P/TSX Total Return Index

S&P 500 Total Return ($CDN)

compound annual returns 1

(including reinvested dividends, as of june 15, 2012)

since inception2

1 Except for 3-month period. 2 December 15, 1994

average monthly performance(dec/94 – jun/12)*

3.4%3.9%

-1.8%

-3.7%

OB Model Portfolio S&P/TSX TR Index

DOWN MONTHS(41% of time)

UP MONTHS(59% of time)

* Performance measured at mid-month

the future is

never clear; you pay a

very high price in the

stock market for a

cheery consensus.

uncertaint y actually

is the friend of the

buyer of long-term

values.

warren buffett

”

“

ob report/3

The Odlum Brown Model

Portfolio was established on

December 15, 1994 with a

hypothetical investment of

$250,000. The Model provides

a basis with which to measure

the quality of our advice. It also

facilitates an understanding

of how we believe individual

security recommendations

could be used within the

context of a client portfolio.

Trades are made using the

closing price on the day a

change is announced.

Performance figures do not

include any allowance for

fees. Past performance is

not indicative of future

performance.

FINANCIALSToronto-Dominion Bank (TD)Brookfield Asset Management Inc. (BAM.A)1Onex Corp. (OCX)The Howard Hughes Corp. (HHC)*Intact Financial Corp. (IFC)JPMorgan Chase & Co. (JPM)*Manulife Financial Corp. (MFC)Berkshire Hathaway Inc. (BRK.B)*2

Bank of Nova Scotia (BNS)Royal Bank of Canada (RY)

MATERIALSBarrick Gold Corp. (ABX)Agrium Inc. (AGU)Potash Corporation (POT)

ENERGYRoyal Dutch Shell PLC ADR (RDS.B)*3

Cenovus Energy Inc. (CVE)Peyto Exploration & Development Corp. (PEY)TransCanada Corp. (TRP)Nexen Inc. (NXY)Encana Corp. (ECA)Bonavista Energy Corp. (BNP)Trinidad Drilling Ltd. (TDG)

INDUSTRIALSCanadian National Railway Co. (CNR)3M Co. (MMM)*General Electric Co. (GE)*United Parcel Service Inc. (UPS)*Ritchie Bros. Auctioneers Inc. (RBA)Canadian Pacific Railway Limited (CP)

CONSUMER DISCRETIONARYLowe’s Companies Inc. (LOW)*Starbucks Corp. (SBUX)*

INFO TECHSyntel Inc. (SYNT)*Apple (AAPL)*Cisco Systems Inc. (CSCO)*Google (GOOG)*STMicroelectronics NV (STM)*

CONSUMER STAPLESThe Coca-Cola Company (KO)*Diageo PLC ADR (DEO)*Colgate-Palmolive Co. (CL)*Sysco Corp. (SYY)*

TELECOM SERVICESBCE Inc. (BCE)

UTILITIESFortis Inc. (FTS)

HEALTH CAREStryker Corp. (SYK)*Novartis AG ADR (NVS)*

SUB TOTALSHORT-TERM INVESTMENTSPORTFOLIO TOTAL

1,6003,7002,7001,3001,2002,0005,500

600750750

1,900900

1,550

1,5001,9003,3001,4003,1002,0002,8007,800

800650

2,600650

2,000500

2,5001,200

1,850120

3,40075

3,000

1,000700550

1,200

2,000

2,500

1,4001,050

$71,826$89,816$49,293$63,704$43,380$77,846

$104,447$49,545$15,713$23,805

$90,915$43,227$64,434

$90,034$65,792$57,090$21,550$96,024$66,178$57,232$72,735

$42,264$56,003$50,404$50,735$41,880$35,955

$58,391$27,941

$45,902$39,079$53,270$38,148$31,490

$49,982$48,931$45,094$42,458

$69,350

$58,375

$75,744$57,696

$2,333,679

$126,368$120,176$106,704

$78,767$72,360$71,584$59,070$50,620$38,985$38,430

$76,532$75,501$60,900

$105,491$61,351$59,697$59,178$52,049$45,200$41,160$41,106

$66,448$58,072$53,131$51,491$41,240$36,690

$71,650$64,419

$109,407$70,394$59,405$43,259$16,185

$77,745$71,236$57,056$35,729

$82,240

$81,250

$77,459$57,590

$2,723,322$20,144

$2,743,467

27.8%4.6%4.4%3.9%2.9%2.6%2.6%2.2%1.8%1.4%1.4%

7.8%2.8%2.8%2.2%

17.0%3.8%2.2%2.2%2.2%1.9%1.6%1.5%1.5%

11.2%2.4%2.1%1.9%1.9%1.5%1.3%

5.0%2.6%2.3%

10.9%4.0%2.6%2.2%1.6%0.6%

8.8%2.8%2.6%2.1%1.3%

3.0%3.0%

3.0%3.0%

4.9%2.8%2.1%

99.3%0.7%

100%

3.7%1.7%0.3%0.0%2.7%3.4%1.0%0.0%4.3%4.4%

2.0%1.2%1.4%

5.0%2.7%3.9%4.2%1.2%3.6%9.6%3.6%

1.8%2.7%3.4%2.9%2.2%1.9%

2.3%1.3%

0.4%1.8%1.9%0.0%7.5%

2.7%2.1%2.4% 3.7%

5.3%

3.7%

1.6%4.6%

$92.00$40.00$47.00$75.00$72.00$55.00$16.00

$120.00$57.00$60.00

UR$110.00

$62.00

$90.00$47.00$27.00$45.00$24.00$20.00$18.00$12.00

$92.00$105.00

$25.00$90.00$27.00$85.00

$34.00$63.00

$74.00$750.00

$24.50$800.00

$9.00

$80.00$105.00$105.00

$36.00

$44.00

$35.00

$68.00$64.00

20%25%19%26%22%60%50%45%14%22%

NMF32%59%

36%48%53%11%44%-8%32%

131%

13%23%28%19%33%18%

23%21%

28%32%45%42%78%

8%8%6%

27%

12%

11%

27%24%

* = Prices in U.S. dollars UR = Under Review NMF = Not Meaningful U.S. Exchange ($US/$CDN) $0.9787 Foreign Weight 46.7%1 Class A shares elect one-half of the company’s Board of Directors.2 A share of Class B common stock has the rights of 1/1,500th of a share of Class A common stock except that a Class B share has 1/10,000th of

the voting rights of a Class A share.3 Class A shares have a Dutch source for tax purposes, and the Class B shares have a UK source.

$78.98$32.48$39.52$59.30$60.30$35.03$10.74$82.57$51.98$51.24

$40.28$83.89$39.29

$68.83$32.29$18.09$42.27$16.79$22.60$14.70

$5.27

$83.06$87.44$20.00$77.53$20.62$73.38

$28.05$52.54

$57.88$574.13

$17.10$564.51

$5.28

$76.09$99.60

$101.53$29.14

$41.12

$32.50

$54.15$53.68

31.0%

19.9%

25.5%

6.0%

4.6%

1.2%

3.0%

5.1%

2.0%

1.6%

100%

Jun 15/12Price

S&P/TSXWeight

Shares Cost MarketValue

PortfolioWeight

DividendYield

TargetPrice

TotalReturn

Potential

odlum brown model portfolio

Odlum Brown Limited is an independent, full-service investment firm focused on providing professional investment advice and objective research. We respect your right to be informed of relationships with the issuers or strategies referred to in this report which mightreasonably be expected to indicate potential conflicts of interest with respect to the securities or any investment strategies discussed or recommended in this report. We do not act as a market maker in any securities and do not provide investment banking or advisoryservices to, or hold significant positions in, the issuers covered by our research. Analysts and their associates may, from time to time, hold securities of issuers discussed or recommended in this report because they personally have the conviction to follow their ownresearch, but we have implemented internal policies that impose restrictions on when and how an Analyst may buy or sell securities they cover and any such interest will be disclosed in our report in accordance with regulatory policy. Our Analysts receive no direct com-pensation based on revenue from investment banking services. We describe our research policies in greater detail, including a description of our rating system and how we disseminate our research, on the Odlum Brown Limited website at odlumbrown.com.

This report has been prepared by Odlum Brown Limited and is intended only for persons resident and located in all the provinces and territories of Canada, where Odlum Brown Limited's services and products may lawfully be offered for sale, and therein only to clientsof Odlum Brown Limited. This report is not intended for distribution to, or use by, any person or entity in any jurisdiction or country including the United States, where such distribution or use would be contrary to law or regulation or which would subject Odlum BrownLimited to any registration requirement within such jurisdiction or country. As no regard has been made as to the specific investment objectives, financial situation, and other particular circumstances of any person who may receive this report, clients should seek the adviceof a registered investment advisor and other professional advisors, as applicable, regarding the appropriateness of investing in any securities or any investment strategies discussed or recommended in this report.

This report is for information purposes only and is neither a solicitation for the purchase of securities nor an offer of securities. The information contained in this report has been compiled from sources we believe to be reliable, however, we make no guarantee, representationor warranty, expressed or implied, as to such information’s accuracy or completeness. All opinions and estimates contained in this report, whether or not our own, are based on assumptions we believe to be reasonable as of the date of the report and are subject to change with-out notice.

Please note that, as at the date of this report, the Research Analyst responsible for the recommendations herein, associates of such Analyst and/or other individuals directly involved in the preparation of this report hold securities of the issuer(s) referred to directly or throughderivatives.

No part of this publication may be reproduced without the express written consent of Odlum Brown Limited. Odlum Brown Limited is a Member-Canadian Investor Protection Fund.

Odlum Brown Limited respects your time and your privacy. If you no longer wish us to retain and use your personal information preferring to have your name removed from our mailing list, please let us know. For more information on our Privacy Policy please visit our website at odlumbrown.com.

please read our odlum brown limited disclaimer & disclosure / it is important

4/ ob report

> Odlum Brown in the Community

odlum brown vanopenJuly 28 – August 5, 2012West Vancouver, BC

Odlum Brown is proud to continue its support as the Title Sponsor of the 2012Odlum Brown VanOpen.

In partnership with Tennis Canada, the United States Tennis Association, the ATPTour, and International Tennis Federation, the Odlum Brown VanOpen is Canada’s onlymajor professional world ranking event tohost both a men’s and women’s competitionsimultaneously, with over 140 professionaltennis players competing for prize money and valuable world-ranking points.

Celebrating its 10th anniversary, the OdlumBrown VanOpen is pleased to announce the special appearance of 15-time GrandSlam Champion, Martina Hingis. Hingis will play in an evening exhibition match onWednesday, August 1.

The Odlum Brown VanOpen takes place at Hollyburn Golf and Country Club (950Cross Creek Road) in West Vancouver.

For ticket information or event details, visitvanopen.com

harmony arts festivalAugust 3 – August 12, 2012West Vancouver, BC

Odlum Brown has supported the HarmonyArts Festival for over a decade and 2012marks the firm’s 11th year as the PresentingSponsor.

For over 20 years, the festival hasshowcased the finest in creative and local talent in both performance and the visual arts and continues to be a premieresummer arts festival.

The Harmony Arts Festival turns the WestVancouver Ambleside waterfront and JohnLawson Park into a 10-day open-air celebration of the arts. Visitors of all ages can enjoy art exhibitions, an art market, artist talks and demonstrations, studio tours, children’s programs, seniors’ concerts,and over 70 distinct concerts on two stages. Most events are free to the public.

Experience the excitement and sounds of the 22nd Annual Harmony Arts Festival.

For more information, visit harmonyarts.ca

musicfest vancouverAugust 10 – August 19, 2012Various Vancouver venues

For over a decade, Odlum Brown has been a proud sponsor of MusicFest Vancouver and is pleased to continue its support as aGold Corporate Sponsor and PresentingSponsor of the Gala Opening Concert for the 2012 Season.

The festival begins August 10 with the Odlum Brown Gala Opening Concert – Hereto Stay: The Gershwin Experience at theOrpheum Theatre. This Canadian premiere is a multimedia concert event that celebratesone of the greatest teams of collaborators in the history of American music.

MusicFest Vancouver is an exciting 10-dayfestival that celebrates classical, world and jazz music. This season will host 40concerts and events by hundreds of talentedinternational and local artists at 13 venuesthroughout Vancouver. Come exploreextraordinary music from around the worldand across Canada.

For ticket information or event details, visit musicfestvancouver.ca