Portfolio Managers Commentary - Q2 2010

1. OceanForest Investment Partners
Security In An Insecure World
After 2008’s sharp decline and last year’s stock market recovery, many had hoped that
2010 would see a return to relative normalcy and stability. And certainly, the year
started on a positive note, as stocks turned in a very strong first quarter performance.
Then, in rapid succession came:
• The intensification of the budget crisis in Greece in February, with the risk of
contagion across Europe
Brent Woyat, • Concerns that European budget cuts would slow down economies, with spill-over
CIM, CMT effects globally; this is especially problematic in light of the need to compete with a
Portfolio Manager devalued Euro
• Growing fears about a housing bubble in China
Suite 102-2168 Marine Drive
West Vancouver, BC • The April 22 sinking of a BP oil drilling rig that had exploded and caught on fire
V7V 1K3 in the Gulf of Mexico
Tel: 604.921.9222
brent.woyat@raymondjames.ca • The May 6 “flash crash” in which U.S. markets plummeted in a matter of minutes
without explanation
Looking at these events, it’s tempting to ask what the next catastrophe will be. In fact,
based on these last six months, historians may view this as “the calamity decade,” even
though we’re only 5% into it.
In talking to clients about how portfolios should be positioned in light of this, I like
to point to the principles of Benjamin Graham, who is considered the father of value
investing.
Starting in 1926, Graham taught at Columbia University and wrote on investments
for 30 years, bringing a new level of rigor to security analysis. His views and approach
shaped a generation of money managers, among them Warren Buffett; he enrolled at
Columbia with the explicit goal of studying under Graham and joined his firm after
graduation. In fact, Buffett describes Graham’s book, The Intelligent Investor, as the
best book on investing ever written.
Recently, financial journalist Jason Zweig unearthed a 1963 talk by Graham, which he
posted on his website. Titled “Securities in an Insecure World,” Graham’s talk reminds
us of guiding principles that investors always need to bear in mind. In chaotic times
like those of late, I particularly focus on three of Graham’s principles.

2. OceanForest Investment Partners
Principle 1: Invest in stocks and bonds only so far as you can live with fluctuations in prices.
The first principle is based on the idea that investors have to understand their own ability to live with volatility.
Graham went on to say that he believed that by following sound policies, almost any investor should be able to eat well
without losing any sleep—even in the insecure world of 1963, shortly after the Cuban Missile Crisis.
Principle 2: The price you pay when you buy stocks is key.
There are many factors that determine how investments perform over time, but few are more important than paying
a reasonable price when you buy. After all, people who bought companies like Cisco, Intel, and Microsoft 10 years ago
have lost half their money—not because these aren’t exceptional companies, but because the price they paid was too high.
In his talk, Benjamin Graham said that investors should always have an allocation to stocks, bonds, and cash. The
minimum level for stocks should be 25% and the maximum 75%. The amount should be determined by value
considerations, owning more common stocks when the market seems low in relation to value and less when the market
appears expensive.
Principle 3: Long-term goals demand long-term thinking.
Benjamin Graham’s student Warren Buffett has said that it only takes two things to make money—having a sound plan
and sticking to it—and that of those two, it’s the sticking to it part that most investors struggle with.
Markets like we’ve seen of late create understandable stress and can lead to short-term decisions. There was a recent article
in the New York Times titled “Resisting the Urge to Sell Low” that talks about the cost to investors of acting impulsively.
At the risk of repeating a time worn cliché, our experience bears out the view espoused by Graham and Buffett that the
only way to invest successfully over time is to maintain discipline and a long-term focus—to have the right plan and
then to stick to it.
Hard as it can be at times, I’ve found the only approach to investing that works over time is to keep that long-term
view, modifying portfolios as circumstances warrant but never losing sight of the fact that long-term goals demand
long-term thinking.
Portfolio Strategy
As eluded to above, the markets are rarely in a state of equilibrium. Generating a steady rate of return with little volatility
does not exist. On the contrary, the markets were highly volatile in the second quarter, mainly on the downside with
the Canadian market down -6.17% and the U.S. market down -11.86%.
Second quarter weakness also resulted in negative returns year-to-date for the major market indexes. As of June 30th
the S&P/TSX Index was down -3.85% while the S&P 500 Index was down -7.57% since the end of 2009.

3. OceanForest Investment Partners
Global macro risks are higher than they were a few months ago due to the fiscal tightening in Europe, the UK, Japan
and now the US economies. The crisis in Greece has prompted G20 leaders around the world to accelerate their austerity
plans in an effort to reduce their runaway spending and exploding budget deficits.
Governments have now embarked on a course of cutting public spending and raising taxes which has investors fearing
we are entering a period of slower global economic growth. Stock prices have been correcting lower, discounting a
lower rate of growth than was built into the markets just a few months ago. The sentiment has made a wide swing
from being optimistic of a V-shaped recovery to being overly pessimistic that we are entering a double-dip recession.
As growth slows, cyclical stocks in particular, which have led the recovery so far, appear overpriced and due for a decline.
In the most recent strategy report from Credit Suisse First Boston (CSFB) their research highlights that certain sectors
carry above average downside risk.
For example, Materials, Capital Goods and Hotels, performed very well coming off the market bottom but are currently
underperforming and look unattractive at this juncture in the economic cycle. Valuation levels are at the top of the
range suggesting considerable downside risk is likely depending on how much of a slowdown we see around the world.
On the positive side, there are several areas that still look attractive such as Consumer Staples, Telecom, Technology
and Advertising. Defensively positioned sectors and groups will benefit from an economic slowdown as investors seek
earnings stability, reliable dividend streams, and liquidity.
Corporate balance sheets remain very healthy as strong cash flows have enabled companies to accumulate large cash
positions to the point where U.S. non-financial companies have over $1.8 trillion in cash on their balance sheets, a 40-
year high. This cash will either be used to make new investments, begin hiring new employees or will be returned to the
shareholders by raising dividend payouts or buying back their own stock. While corporations have been getting their
houses in order, unfortunately, governments have gone in the other direction with out-of-control spending.
Turning to the technical picture, in August 2009 our tactical asset allocation model turned bullish and still remains in
a positive mode even through the recent market correction that began in April. As long as our model stays positive we
will maintain a bullish posture and our strategic equity weighting in the various investment mandates.
Not until our tactical model turns bearish will we begin reducing the equity exposure down to the lower end of the
range stated in our statement of investment policy.
We are still giving the markets the benefit of the doubt that we are simply midway through a cyclical bull market that
began at the March 2009 lows. The strong recovery bounce off of the bear market lows was clearly unsustainable and
appears to be undergoing a correction. We saw a similar situation back in 2004 where the market experienced a major
four month correction with equities trading in a sideways range before starting the second up leg in the bull market.
Although the markets have had a pretty rough go of it lately, the returns in our investment mandates were respectable.
During the quarter our most conservative Enhanced Income portfolio was down -0.10% but was up 2.24% year-to-date.
The balanced Global Growth and Income portfolio was down -3.07% in the quarter but flat year-to-date, down -0.25%.
The all equity Dividend Growth portfolio was down -4.52% in the quarter and -2.43% year-to-date.

4. OceanForest Investment Partners
Our U.S. Dollar portfolios fared worse than the Canadian Dollar portfolios. The Global Market Leaders Balanced
mandate was down -5.75% in the quarter but managed to recover slightly with a return of -2.93% so far this year. The
Global Market Leaders all equity portfolio was down -10.34% in the quarter and -7.56% year-to-date.
In all of our portfolio mandates the sell-off in May caused most of the damage but we also saw another wave of selling
in the last couple of weeks of June.
During the quarter, there were several positions that held up well. The best performer was Biovail with a gain of almost
20% due to a merger announcement with Valeant Pharmaceutical out of the U.S. Cenovus Energy was up 8.85% as
investors have begun to warm up to the stock after the spin-off from Encana last fall.
We’ve noticed strong demand in the Telecom Sector with Telus being a beneficiary gaining 7.7%. There’s some renewed
interest in the company’s new Optik TV and High Speed Internet services offering as a result of billions of dollars
invested in the recent upgrade of their fiber optic network.
Other notable winners in the quarter include China Mobile, up 6.7%, Encana, up 5.4%, Saputo, up 3.5% and George
Weston, up 3.4%.
All of our portfolios are designed to generate as much tax efficient income as possible in a low interest rate environment
by investing in corporate bonds, preferred shares, dividend paying stocks, income trusts and REITs.
In closing, let me reiterate my appreciation for the continuing opportunity to work together. As always, I welcome your
calls and questions and would be happy to talk at any time.
Sincerely,
Brent Woyat, CIM, CMT
Portfolio Manager
OceanForest Investment Partners
Statistics, factual data, and other information contained in this report were obtained from sources believed to be reliable, however, we cannot
represent that they are 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., member Canadian Investor Protection Fund.