1. OceanForest Investment Partners
Portfolio Managers Commentary – Q1 2011
Critical Lessons from Japan
“The only certainty is that nothing is certain”
– Pliny the Elder - First century Roman author and naval commander
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure
that just ain’t so.”
– Mark Twain, 1835-1910
At the end of each quarter, I send my clients a letter summarizing events of the
past three months ... and usually try to find a relevant quotation to establish the
Brent Woyat, CIM, CMT
tone for my note.
Portfolio Manager
For this quarter’s letter, I have selected quotes written 1900 years apart to highlight
Suite 102-2168 Marine Drive
West Vancouver, BC two important lessons for investors, made tragically apparent from the recent events
V7V 1K3 in Japan. One is the need to construct portfolios that expect the unexpected and
anticipate the unanticipated. And the other relates to avoiding one of the costliest
Tel: 604.921.9222
brent.woyat@raymondjames.ca
traps that ensnares investors.
www.ofip.ca
Market Performance in the First Quarter
Before getting into the details of those lessons, here’s a quick recap of the equity
market performance in the first quarter ended March 31st for selected indexes we
follow:
MSCI Index YTD to March 31 1 Year
Canada 5.0% 15.2%
U.S.A. 5.5% 13.8%
Europe 1.6% 2.5%
Emerging markets 0.3% 10.8%
The World Index 3.1% 6.7%
Source: MSCI. All returns are in local currency.
The markets in January and February reflected a continuation of last year’s positive
sentiment. This was spurred by solid corporate profits and a broad consensus that
while the global economy might not experience a strong recovery going forward,
it would see some growth.
March began with an initial setback. The earthquake and tsunami in Japan on
March 11th, which took a dreadful toll in human lives, clearly reduced the short-
term prospects for the global economy. The turmoil in North Africa, while positive
for oil prices, also had a negative impact on markets due to concerns about the effect
on consumer demand. By the end of March, however, positive economic growth

2. OceanForest Investment Partners
Portfolio Managers Commentary – Q1 2011
reports in the US and Europe allowed most markets to recover their initial losses.
As a result, developed markets generally saw gains at the end of the first quarter that put them on track for solid
performance in 2011. In the past year, Canada, the U.S., and Emerging Markets posted strong returns while the
European region lagged by a fair margin.
Learning to Live with Uncertainty
If they operate efficiently, stock and bond markets incorporate all the available information at a given point in
time. That’s why when sovereign debt problems emerged in Greece early last year; other European countries seen
as having potential problems along the same lines saw an immediate spike in the cost of insuring their debt. Even
though they hadn’t run into problems yet, the market factored this possibility in.
Market analysts spend thousands of hours each year on these kinds of issues - with enough time and research, slow
forming problems like government debt problems can be identified before a crisis unfolds.
What can’t be anticipated are developments that are by their nature unpredictable? We’ve had at least four such
events in the past year:
• Last April’s volcanic eruption in Iceland that spewed ash in the air, shut down 100,000 transatlantic flights
and cost the airline industry $2 billion;
• Also last April, the explosion of the Deepwater Horizon oil rig in the Gulf of Mexico;
• Commencing last December, street protests resulting in changes of leadership in a number of countries in
North Africa, leading directly to the current war in Libya;
• And of course the earthquake, tsunami and nuclear-reactor crises in Japan.
In light of episodes like these, investors need to take away two key lessons.
Lesson One: Expect the Unexpected
The only way to deal with uncertainty and manage the impact of unforeseen events is to build strict risk controls
into portfolios, similar to those used by the most sophisticated pension funds. While the risk of one time incidents
can’t be eliminated, through diversification and risk management we can limit the damage when negative events
occur - whether they be massive frauds such as Enron, sudden bankruptcies like Lehman Brothers, volcanic
eruptions, oil rig explosions or earthquakes.
I thought it might be useful to provide an overview of my approach to risk management in portfolio construction.
There are three steps in this process.

3. OceanForest Investment Partners
Portfolio Managers Commentary – Q1 2011
Step One: Identify Target Mix
First, we identify the target mix of stocks, bonds and cash that, based on historical precedent and current valuation
levels, will over time have a high likelihood of providing the returns you need to achieve your long term goals with
a level of volatility you can live with along the way.
Step Two: Diversify
Next we carefully diversify your portfolio, by placing limits on the exposure to any one company, industry sector
or region. For individual holdings, it’s typically an absolute percentage of your portfolio - so for example no one
stock should make up more than 5% of your equity holdings and no one bond should represent more than 3%
of your fixed income exposure.
As well, no matter how optimistic we are about an industry sector or region, its weight should never be more than
50% above its underlying importance in the market as a whole.
Step Three: Know When to Sell
Knowing when to sell is one of the hardest decisions to make in investing. Buying a stock is relatively easy; however,
selling techniques are far more complicated, and subject to considerably more emotional pressure.
Our job is to be as objective as possible and be able to pull the trigger when supply overwhelms demand. There
will be times when we are wrong and sell too soon. Or we may have to sell shortly after establishing a long position
as the fundamentals upon which we bought looked attractive but the market proved us wrong.
Having a disciplined selling process is the only way to get some protection from things that simply can’t be anticipated.
Lesson Two: Avoid Overconfidence
Aside from the time entailed, there is one big negative to the risk-controlled approach to portfolio construction - in
the short-and mid-term, there will always be someone who’s made a big bet that’s paid off and who is doing better
than you as a result. Because it eliminates big bets, a risk-controlled approach to investing will seldom give you
bragging rights on the golf course.
Investors who take the big bet approach typically have a high degree of confidence in their investments; after all,
if you’re absolutely certain about a company or industry, why bother to diversify? On the other hand, research by
the University of Chicago’s Richard Thaler has demonstrated that overconfidence is among the most costly traits
an investor can have.
Think no further than the Canadians who stuffed their portfolios with Nortel during the tech boom. At its peak,
Nortel represented 35% of our market - and 50% plus of many portfolios. While not nearly as extreme, a case can
be made that as a result of their strong performance over the past ten years, today many investors have too much of
their savings in Canada’s banks, gold, oil and mining stocks and Canadian stocks as a whole. In fact, many global
analysts today identify Canada as one of the most expensive stock markets among all the developed countries.

4. OceanForest Investment Partners
Portfolio Managers Commentary – Q1 2011
The quote from Mark Twain at the start of this letter says it all - what gets us in trouble aren’t the things we’ve
identified as question marks and causes for concern. Rather, portfolios crater because of the things that we’re
absolutely positive about - right until unanticipated occurrences catch us by surprise.
Portfolio Strategy
In our quarterly commentaries we always refer to our “Tactical Asset Allocation Model” as a key indicator to help
us determine the primary trend of the equity markets. Think of it as a “Hurricane Warning” signal. When the
indicator is positive, as it is currently, we see blue sky and smooth sailing. However, when dark clouds begin to
form on the horizon and risk of a major storm approaches we will batten the hatches and move into a defensive
position until the storm passes.
Although the bull market is now over two years old, measured from the March 2009 bear market low, our Tactical
Model continues to indicate a full equity weighting in all our investment mandates. Our model has helped keep us
well positioned on the right side of the market; therefore, until it signals otherwise we will maintain our long-term
bullish outlook for the Canadian and U.S. equity markets. However, in the near-term we may see some downside
volatility as we enter a period of unfavorable seasonality for stock prices which usually lasts until the fall.
While overall the markets are relatively stable, there are a few asset classes that we feel have the potential to undergo
major trend changes this summer based on the research of economist Martin Armstrong. The origins of his work
dates back to the 1970’s and I’ve been following his research since the early 1990’s.
Through exhaustive historical study, Armstrong created the “Economic Confidence Model” based on an 8.6 year
business cycle of the world economy. His model has identified major turning points in the global capital markets
with amazing accuracy. It’s far too complex a subject to discuss in length in this commentary; however, according
to his model there is a key date approaching in mid-June warning of some important trend changes in a variety of
markets which have experienced large capital inflows or outflows.
Some of the key markets we are observing to record major highs this summer before turning lower include Chinese,
Australian and Canadian real estate, commodity prices, in particular, unleaded gas, gold and silver, while in the
currency markets we are looking for major highs in the Canadian, Australian and New Zealand Dollars, the Swiss
Franc and Japanese Yen.
Markets approaching major lows that have the potential to turn higher include the U.S. Dollar, Natural Gas and
interest rates in both Canada and the U.S. As we’ve alluded to in this commentary, expect the unexpected and
avoid becoming overconfident or complacent in the continuation of existing trends.
In terms of portfolio positioning we are also witnessing the end of an 11-year trend in outperformance of Canadian
equities relative to U.S. equities. As this trend reversal unfolds we will be spending more time searching for
investment opportunities south of the border as valuations are more attractive and the depth of marketable securities
is much greater than we have here in our home market.

5. OceanForest Investment Partners
Portfolio Managers Commentary – Q1 2011
The investment mandates we manage posted fairly decent returns in the quarter. Our Dividend Growth portfolio
gained 5.3% in the three months ending March 31st with a return of 23.4% over the previous twelve months. The
Global Growth and Income portfolio, which contains a mix of stocks, bonds and cash, was up 3.75% in the quarter
and 12.8% over the past year. Our most conservative Enhanced Income portfolio was up 2.5% in the quarter and
11.5% for the year.
Our $US Dollar portfolios lagged somewhat but are well positioned going forward. The 100% equity Global
Market Leaders portfolio gained 3.6% in the quarter and 5% for the year while the Global Market Leaders – Balanced
portfolio, which holds U.S. stocks and bonds, was up 4.2% in the quarter and 8.2% year over year.
In summary, we’ve always had unexpected events and always will and despite these, economies have grown,
companies have prospered and stock markets have generated positive returns. The key to benefiting from this
longterm growth has been to diversify so that no single event can create permanent damage to your portfolios.
When it comes to longterm investing, it’s not only the slow and steady approach that wins the race, but more
importantly, slow and steady survives to cross the finish line.
I believe that we will work through the recent events and those investors with a balanced approach and a long-term
view will be well rewarded. The approach to risk management I’ve described may not be fun or sexy in the short
term, but all the evidence at hand suggests that over time it will serve you well, getting you to your goals with the
least amount of stress and distress along the way.
Should you have any questions in the meantime on your portfolio, the contents of this note or any other issue, please
give me a call - I’d be happy to deal with your questions on the phone or at our next meeting.
As always, thank you for the opportunity to work together.
Best regards,
Brent Woyat, CIM, CMT
Portfolio Manager
OceanForest Investment Partners
May 4, 2011
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-
Canadian Investor Protection Fund.