OB Report
April 2021
Page 1  |  Page 2  | Page 3 - 4  |  Printable PDF (1.34 MB)

 

OB Model Portfolio –
Good News and Bad News

Murray Leith By Murray Leith CFA, Executive Vice President & Director, Investment Research


OB Model Portfolio March 2021

The good news is the economy and stocks are in better shape than we anticipated. Compared to their respective pre-pandemic peaks on February 20, 2020, the Canadian and U.S. equity benchmarks yielded total returns of 9.4% and 12.8% through to mid-March 2021, measured in Canadian dollar terms. The bad news is we haven’t kept pace with the benchmarks; our Model is up 5.7% over the same period.

Historically, our long-term, benchmark-beating record has been achieved by losing less during market setbacks and underperforming in fast-rising markets. While that general pattern held true around the pandemic crash and subsequent recovery, the cumulative outcome has been less favourable than past market cycles.

We were more cautious than usual during the pandemic-induced crisis this past year. We raised cash prior to the market crash, and we were slow to deploy it as economies and markets recovered. Moreover, we sold a few higher-risk stocks at depressed prices in and around the height of the storm. Those actions cost us, as we locked in some losses and missed out on some opportunities by holding cash that didn’t generate much return. Like an insurance policy that wasn’t needed, playing it safe didn’t pay off.

While we can’t get our insurance premiums back, we will adhere to the approach and discipline that have delivered market-beating performance in the past. Our approach is not flashy, but it works.

One of the keys to accumulating wealth is not permanently destroying capital by chasing and overpaying for speculative stocks. As described in the previous article, there is an enormous amount of highly speculative activity in the market lately, and it’s reminiscent of the dot-com bubble at the turn of the century. While it’s hard for price-conscious investors like us to keep up in such markets, history teaches that it is better to be safe than sorry. The best way to avoid the fallout when the inevitable bubble bursts is to not participate in the speculative activity.

Underperforming in the short term can and will fuel many unpleasant emotions, including frustration, regret and envy. However, if the past is a guide, discipline will yield relief and rewards.

We own many great companies that are reasonably priced, and we remain confident that our collection of businesses will outperform the general market over time.



Please read our Odlum Brown Limited Disclaimer and Disclosure - It is important!

The Odlum Brown Model Portfolio is an all-equity portfolio that was established by the Odlum Brown Equity Research Department on December 15, 1994, with a hypothetical investment of $250,000. It showcases how we believe individual security recommendations may be used within the context of a client portfolio. The Model also provides a basis with which to measure the quality of our advice and the effectiveness of our disciplined investment strategy. 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.

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 might reasonably 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 advisory services to, or hold 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 own research, 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 compensation 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 here.

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 clients of 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 Brown Limited 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 advice of 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, representation or 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 without 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 some of the issuer(s) referred to directly or through derivatives.

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.