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“The Great Sideways Market”
“I have no idea what the stock market will do next month or six months from now. I do know
that, over a period of time, the American economy will do very well, and investors who own a
piece of it will do well.”
– Warren Buffett in a CNBC interview, Oct. 10, 2008
After the market roller coaster of 2008 and 2009, the first quarter of 2010 has been blessedly
uneventful by comparison - the markets ended the first quarter about where they started
the year, although up nicely from their lows of a year ago.
Brent Woyat,
That said there is still a cloud of uncertainty that is making many investors nervous. Even
CIM, CMT
with the stabilization of the global economy, there’s no shortage of short-term causes of
Portfolio Manager
concern:
Suite 102-2168 Marine Drive • Continued questions on the direction and timing of the economic recovery in the United
West Vancouver, BC States and Europe. It’s difficult to separate how much of the upturn can be attributed
V7V 1K3 to government fiscal and monetary policies or if the economy is strong enough to stand
on its own two feet alone.
Tel: 604.921.9222
brent.woyat@raymondjames.ca • U.S. housing prices that are staying stubbornly low and unemployment levels in North
America and Europe that are stubbornly high. In Canada, the Bank of Canada is worried
about a housing bubble that looks close to bursting while Canadians are now carrying
one of the highest debt loads in the developed countries with interest rates at record
lows and about to begin the march higher.
• And in late March, the deputy director of the International Monetary Fund made
headlines as he talked about the need for advanced economies to cut spending in order
to reduce deficits. Euro zone countries, particularly Greece, are stealing the headlines
these days with government debts spiraling out of control.
The good news is that there are offsetting positives, even if the media headlines that feature
them aren’t quite as prominent:
On Monday March 22, the Wall Street Journal ran a story about dividend hikes as a result
of rising profits by U.S. companies. The article also mentioned that cash on hand on U.S.
corporate balance sheets was at the highest level since 2007.
On the same day, the Financial Times ran a similar story about dividend increases in
Europe.
And there’s growing attention to the impact that Germany’s emphasis on manufacturing
productivity had in sheltering it from the worst of the economic downturn—and questions
about whether this might be a model for other countries. Earlier in March, The Economist
ran a 14-page feature on how Germany positioned itself for success.

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Whether you choose to focus on the positives or the negatives, there’s broad agreement that the steps taken by governments
stabilized the financial crisis that we were facing a year ago, and there is very little talk today of a global depression.
So the issue is not whether the economy will recover, but when and at what rate—and whether there might be another
stumble along the way.
If you look for investing advice in the newspaper or on television, the discussion tends to revolve around which stocks will
do well in the immediate period ahead - this week, this month, this quarter.
We refuse to participate in that speculation. When it comes to short-term predictions - whether about the economy or the
stock market - there’s one thing we can say with virtual certainty: Most of them will be wrong. Quite simply, no one has a
consistent track record of successfully forecasting short-term movements in the economy and markets.
Advice from Warren Buffett
In an investment industry poll a couple of years ago, Buffett was voted the greatest investor of all time; among the runners-up
were Peter Lynch, John Templeton, and George Soros.
Buffett’s returns are a testiment to the power of compounding. From 1965 to the end of 2009, the growth in book value of
his investments averaged 20% annually. As a result, $10,000 invested in 1965 would currently be worth a remarkable $40
million. By contrast, that same $10,000 invested in the U.S. stock market as a whole, returning just over 9% during this
period, would be worth $540,000.
In one of his annual letters to shareholders, Buffett wrote that it takes only two things to invest successfully: having a sound
plan and sticking to it. He went on to say that of these two, it’s the “sticking to it” part that investors struggle with the most.
The quote at the top of the letter, made at the height of the financial crisis, speaks to Buffett’s discipline on this issue.
I try to apply that approach as well, putting a plan in place for each client that will meet their long-term needs and modifying
it as circumstances warrant, without walking away from the plan itself.
Boom times such as we saw in the late ‘90s and scary conditions such as we’ve seen in the past two years can make that
difficult, but those conditions can also represent opportunity. Indeed, in his most recent letter to shareholders, Buffett wrote
that “a climate of fear is an investor’s best friend.”
Five core principles that shape our approach
On balance, I share Buffett’s mid-term positive outlook, not least because many of the positives that drove market optimism
two years ago are still in place, among these the continued emergence of a global middle class in developing countries like
Brazil, China, India, and Turkey. This educated middle class will fuel global growth that will make us all better off.
In the meantime, there are five fundamental principles that drive the portfolios we manage that we believe will serve clients
well in the period ahead.
1. Concentrate on quality. The record bounce in stock prices over the past year was led by companies with the weakest credit
ratings. Some have referred to last year as a “junk rally,” with the lowest-quality companies doing the best. That’s unlikely
to continue - and that’s why I’m focusing our portfolios on only the highest-quality companies, those best able to withstand
the inevitable ups and downs in the economy.

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2. Look to dividends. Historically, dividends have made up 40% of the total returns of investing in stocks and helped provide
stability during market turbulence. Two years ago, quality companies paying good dividends were hard to find. One piece
of good news is that today it’s possible to build a portfolio of good-quality companies paying dividends of 3% and above.
Not only are we looking for companies that pay consistent dividends but also those that have the ability to grow their
dividends over time.
3. Focus on valuations. Having a strong price discipline on buying and selling stocks is paramount for success. History shows
that the key to a successful investment is ensuring that the purchase price is a fair one. Investors who bought market leaders
Cisco Systems, Intel, and Microsoft 10 years ago are still down 40% to 70%, not because these aren’t great companies, but
because the price paid was too high and those companies were overvalued.
4. Buy and hold investing no longer applies. There are certain periods of time where equity markets experience long periods
of rising prices like we saw in the 1940’s - 50’s and during the 1980’s - 90’s. These periods are referred to as secular uptrend’s
which can last from 15 to 20 years. In other periods such as 1966-1982, there was “a great sideways market” which required
a more active approach to buying and selling stocks in order have successful investment results. This is the type of market
environment we are currently experiencing which started in 2000 that unfortunately could last for another five years.
5. Stick to your plan. In the face of economic and market uncertainty, another key to success is having a diversified plan
appropriate to your risk tolerance and then sticking to it. It can be hard to ignore the short-term distractions, but ultimately
that’s the only way to achieve your long-term goals with a manageable amount of stress along the way.
Portfolio Strategy
Our tactical asset allocation model continues to indicate that the primary trend in Canadian and U.S. equity markets is rising.
As long as this model indicates that the bull market is intact we will maintain the strategic equity weightings in each of our
model portfolios.
One development that we commented on in our last commentary was the emerging strength of the U.S. Dollar. As the Euro
zone debt problems continue to escalate, the risk of potential defaults by countries such as Greece has resulted in capital
fleeing the Euro into U.S. Dollars as a safe haven.
Technically, our charts are also suggesting that the U.S. Dollar is about to begin a new bull market relative to the Canadian
Dollar. Since the U.S. Dollar peaked around $1.30 in March 2009 it’s been in a declining trend for the past thirteen months.
However, a breakout above the $1.03 level would signal a reversal of the downtrend and a major bullish trend change for
the U.S. Dollar. For those looking to exchange their Loonies for Greenbacks, this is likely the best opportunity we’ve seen
in two years.
Based on our outlook for the U.S. Dollar we are looking for opportunities to purchase good quality, large, dividend paying
companies south of the border in order to add value to our portfolios.
Looking back on the first quarter of 2010, we added shares to some of our existing positions and made a few new purchases in
the portfolios. In our Enhanced Income and Global Growth and Income portfolios we purchased shares in Sun Life Financial,
an international financial services organization. The company offers a diverse range of life and health insurance, savings,
investment management, retirement, and pension products and services to both individual and corporate customers. At the
time we purchased the shares the dividend yield was approximately 4.5%.

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We also added to our existing positions in EnCana and Cenovus Energy which was spun off from EnCana last year. Although
it’s been difficult to find attractive corporate bonds in the low interest rate environment, we managed to purchase some
Consumer Waterheater 6.75% 2014 bonds. The company owns a portfolio of 1.4 million installed water heaters and other
assets, leased primarily to residential customers in Ontario.
Continuing to search for yield, we purchased some Brookfield Asset Management Series 12 Preferred shares yielding
approximately 5.2%.
In the Dividend Growth portfolio we purchased Cameco Corp. which is primarily engaged in the exploration for and the
development, mining, refining, conversion and fabrication of uranium for sale as fuel for generating electricity in nuclear power
reactors in Canada and other countries. The other position we added was Rogers Communications in the telecom sector.
In our U.S. Dollar Global Market Leaders portfolios we purchased several stocks that we consider to be good quality, large
companies, showing good relative performance. These well known names include The Travelers Companies, Western Digital,
McDonalds, Toyota, Aflac, TJX Companies, VISA, News Corp., and Celgene.
In closing, let me express my thanks for the continued opportunity to work together. Should you ever have questions, or if
there’s anything you’d like to talk about, my team and I are always pleased to take your call.
Sincerely,
Brent Woyat, CIM, CMT
Portfolio Manager
OceanForest Investment Partners
The information contained in this report was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or
complete. This report is provided as a general source of information and should not be considered personal investment advice or solicitation to buy
or sell securities. The views expressed are those of the author and not necessarily those of Raymond James Ltd. Raymond James Ltd. is a Member
CIPF. Within the last 12 months, Raymond James Ltd. has undertaken an underwriting liability or has provided advice for a fee with respect to
the securities Brookfield Asset Management.