Anodyne Inc. Quarterly Report to Shareholders

Multiple distributions and quarterly report:

Dominion Citrus Income Fund (DOM.UN): 12,346 units x .01/unit = $123.46 (30 Dec)

E-L Financial Corporation (ELF): 7 shares x .125/share = $0.88 (30 Dec, world's best!)

Loblaw Companies (L): 217 shares x .21/share = $45.75 (30 Dec)

Norbord, Inc. (NBD): 1208 shares x .10/share = $120.80 (21 Dec)

North West Company Fund (NWF.UN): 600 units x .27/unit = $162.00 (15 Jan)

Parkland Income Fund (PKI.UN): 3510 units x .105/unit = $368.65 (15 Jan), plus $1247.68 (special distribution), plus 91 new units, plus $13.65 (all 15 Jan)

TerraVest Income Fund (TI.UN): 1109 units x .04167/unit = $46.21 (15 Jan)

Current portfolio:

Dominion Citrus Income Fund (DOM.UN): 12,346 units
E-L Financial Corporation (ELF): 7 shares
Hart Stores (HIS): 1769 shares
Loblaw Companies (L): 217 shares
Norbord, Inc. (NBD): 1208 shares
North West Company Fund (NWF.UN): 600 units
Parkland Income Fund (PKI.UN): 3601 units
TerraVest Income Fund (TI.UN): 1109 units
Amerigo Resources, Inc. (ARG): 1895 shares

Cash balance, $2355.53

Performance

Anodyne Inc., 25 October 2006 - 1 February 2008: 1.49% increase

TSE 300 index, 25 October 2006 - 1 February 2008: 7.91% increase

Relative result: (6.42%)

I am obviously unhappy about this quarter's poor relative performance (compare with 25 October 2007's annual report, reporting a 22.46% gain for Anodyne and a 14.45% increase for the TSE), but not distraught enough to liquidate any of the portfolio's positions. Like I say robotically every quarter: this stuff isn't for the faint of heart, and long-term means just that: having an investment horizon whose intervals are years, not months or even quarters. I pay much closer attention to the business' operating results than to share prices, and, in general, their performance has been satisfactory given the North America-wide recession that's apparently underway. Some businesses -- Parkland, the North West Company -- are performing extraordinarily well, but have seen their share/unit prices crushed since October.

Have I made any mistakes? A few. I'm probably insufficiently diversified: Parkland accounts for approximately 50% of the portfolio's current value. That said, Parkland is a one-of-a-kind business that I've owned in real life since 1986, and one that I'm willing to hold indefinitely. Parkland also owns "semi-visible" assets (eg., the Bowden refinery) which in my judgement are not accurately reflected in the current share price.

Perennial losers Dominion Citrus and Hart Stores have been posting middling sales for as long as I've owned them. I think both companies' business models are basically sound, and that both have taken steps to expand their core competencies: Hart by building new stores and a new distribution center, and Dominion by focusing their operations on higher-margin "value added" products like fresh-cut fruit. A recession is a tough time to hold retail and homebuilding stocks, Loblaw Companies and Norbord included. That said, Hart pays a (small) annual dividend, and Dominion paid a dividend before its conversion to an income trust structure, and I'd expect it to eventually pay one again after it converts back to a corporate structure in June.

Any other mistakes? Yes: not very many financial stocks are represented in the portfolio. I own Bank of Montreal, Royal Bank, and Scotiabank in real life, but the portfolio is limited to E-L Financial, and that single position is small. I like Fairfax Financial Holdings' value orientation, but can't make head or tail out of their financial statements and filings. Lots of complex reinsurance deals that I'm not experienced enough to properly evaluate.

So, not much change for now at Anodyne Inc. Next update: on or around April 25th.
- posted by cjb @ 6:00 PM