Anodyne Inc. Quarterly Report to Shareholders

Previously unaccounted-for dividends and distributions:

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

Parkland Income Fund (PKI.UN): 3601 units x .105/unit = $378.11 (15 Mar)

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

Parkland Income Fund (PKI.UN): 3601 units x .105/unit = $378.11 (15 Apr)

Loblaw Companies (L): 217 shares x .21/unit = $45.57 (1 April)

Amerigo Resources (ARG): 1895 shares x .065/share = $123.18 (2 April)

Norbord Inc. (NBD): 1280 shares x .10/share = $128.00 (21 March)

North West Company Fund (NWF.UN): 600 units x .12/unit = $72.00 (22 Feb, special distribution)

North West Company Fund (NWF.UN): 600 units x .32/unit = $192.00 (15 April)

E-L Financial (ELF): 7 shares x .125/share = $ .88 (17 April, world's most generous)

Cash balance, $1410.27

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): 1820 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

Performance

Anodyne Inc., 25 October 2006 - 24 April 2008: (3.60%) decrease

TSE 300 index, 25 October 2006 - 24 April 2008: 13.19% increase

Relative result: (16.79%)

This quarter's performance is a good example of why I have no interest in running money for anyone but myself. If I, God forbid, had a CFA degree and investors, even close friends or loved ones, I strongly suspect most of them would have pulled their money out a month or two ago when the short-term results started going south. Fortunately I have no one to answer to but myself (and the few of you who do read these quarterly updates, which seem, judging by the mailbag, to be the least-loved and least-understood topic under discussion here). So once again the usual caveat: I grade my horizon on a rolling three- to five- year horizon, as should you, and "volatility" is a fundamental part of securities analysis. To quote my old high school physics teacher, "Look, it goes up and down!" And down, and down, and down. The natural temptation is to assume the market knows more about the securities you own than you do, and to panic, and to sell out, or "diversify" into something "safer." No shortage of problems: Norbord's bleeding cash; Hart's sales are down; Amerigo's power costs have soared; Dominion Citrus' CFO departed under mysterious circumstances, & etc. Loblaw is vilified in the Globe and elsewhere as a "classic value trap." Well, maybe. My sense is that you pay a price for consensus, and that I know more about the companies I currently own than the market does. Some examples: at its present price, Loblaw is currently trading at about a 10-12% discount to my estimate of the fair market value of its real estate. At its current share price, the grocery business -- the merchandise; the name; the admittedly dented but still tangible goodwill -- is free. Ditto Norbord, leaking money like a sieve, but trading at approximately 50% of the replacement value of its mills. Ditto Dominion Citrus, the most misunderstood and unloved of all my holdings, which just ticks quietly along, earning $ .08-.10/year, eg., trading today at a P/E ratio of 5.5. Insiders at all of these companies have been steadily buying in the public markets (see Canadianinsider.com, a valuable free resource). One assumes that, as rational managers, they have reasonable if not perfect insight into the economics of their businesses, and that they see medium- to long-term value in owning small pieces of them. So, at any rate: not much change for now here at Anodyne Inc. HQ. "Keep calm and carry on." Anyone with specific questions about particular portfolio holdings should get in touch.

- posted by cjb @ 9:16 PM