“Is there going to be a correction?” With the financial crisis of 2008/09 still fresh in people’s minds, and the media forever warning that the sky is falling, we don’t blame investors for asking. But it’s the wrong question.

The right question is, “How am I going to react when the inevitable corrections arrive?” The answer needs tobe, “I’m not going to do anything or I’m going to buy more.”

If that is not the answer, then you should work with your investment advisor to adjust the asset mix in yourportfolio to reduce volatility and minimize the chance of panic. The right asset mix is different for everyone,and it’s important that you get it right so that you have the conviction to hold great businesses through thegood times and bad.

Far too many people think that investment riches are achieved by jumping in and out of the market andswitching between stocks and sectors. We do not fault people for thinking that way because the investmentindustry and the media are constantly reinforcing the idea that you have to react to every breaking develop-ment. But that is not the case.

You do not get rich in the stock market by trying to outsmart other investors and second-guessing market action in the short-term. Both are simply too hard to achieve and we are not aware of anyone who is consistently good at it. The world’s wealthy got rich by owning good businesses over the long run. Goodbusinesses grow and compound value internally, and the rising tide of intrinsic value ultimately accrues to patient, long-term investors.

The unfortunate reality is that the human race is not very good at processing and reacting to short-term developments. It’s very easy to say “buy low and sell high,” but it is human nature to do the opposite – tobuy high and sell low – as people are tempted to chase hot stocks and dump the laggards.

The average investor does poorly because his or her emotional reaction to volatility leads to poorly timed buy and sell decisions. Richard Bernstein, Chief Executive Officer and Chief Investment Officer of RichardBernstein Advisors, highlighted the depressing reality by comparing the investment performance of the aver-age investor to the performance of roughly 20 asset classes and sub-asset classes (refer to the chart above).For the 20-year period ended December 2013, the average U.S. investor achieved an annual return of just2.5% and underperformed every asset class or sub-asset class except Asian Emerging Markets and Japan.The average investor could have achieved a better result by rolling three-month T-bills. Over the same 20-year period, the 10-year U.S. Treasury bond earned 5.5% per year while the U.S. equity benchmark, theS&P 500 Index, compounded at an annual rate of more than 9%. Continued on next page

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ODLUMBROWN.COM

ODLUMBROWNREPORT

12 2014

INSIDE THIS ISSUE

Page 1Investors Ask the Wrong Question

Page 3Year-End Tax Tips and Deadlines

Odlum Brown LimitedSuite 1100 - 250 Howe Street

Vancouver BC V6C 3S9

Main 604 669 1600Toll Free 1 888 886 3586

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@Odlum_Brown

Odlum Brown Community

Investors Ask the Wrong Question

ASSET CLASS RETURNS VS THE “AVERAGE INVESTOR” 20 YEARS ANNUALIZED (12/31/93 - 12/31/13)

Source: Richard Bernstein Advisors LLC., Bloomberg MSCI, Standard & Poor’s, Russell, HFRI, BofA Merrill Lynch, Dalbar, FHFA, FRB, FTSE. Total Returns in USD.

“Wishing you a wonderful holiday season and a happy new year.”

2

INVESTORS ASK THE WRONG QUESTION Continued from page 1

Volatility is a fact of life in the stock market. The chart above highlights the range of inter-year gains and losses for the broadly based U.S. S&P 500 Index, with the dark blue or dark grey bars indicating the closing level for each year. Since WWII, there have been 176 corrections of 5% or more, which averages about 2½ per year.So far, there have been two corrections of that magnitude in 2014 – about normal. We can guarantee that there will be more corrections. We just can’t tell you when.

Investors who accept volatility do well, while those who try to anticipate it invariably do poorly. The interesting and unusual thing about the current stock market cycleis that investors are not throwing caution to the wind as the bull market ages. Despite significant stock market gains, investors have been biting their nails the wholeway up. As highlighted in the chart below, investors have been net sellers of equity mutual funds for almost the entire rally. That’s a shame, given that the Canadianand U.S. equity benchmarks have more than doubled and tripled from their respective lows in March 2009.

The Odlum Brown Model Portfolio has grown almost 19 fold, or 15.9% compounded annually, over almost 20 years. We didn’t achieve that record by jumping in and out of the market. In fact, we have never made a call to sit on the sidelines in cash while waiting for a correction and buying opportunity. We probably never will. We achievedour track record by owning good or great businesses through good times and bad. Rather than trying to time the market, we are disciplined about the price we pay forstocks, and shift emphasis over time to those stocks and sectors with the best relative value. To do better than the average investor and reach your retirement goals, it’s important to stop fearing corrections and accept them as a market reality. The formula for achieving investment success is really quite simple: (1) develop a long-term planwith an appropriate mix of stocks and bonds; (2) buy quality businesses at reasonable prices; (3) ignore the short-term noise; and (4) stick to the plan.

70%S&P Annual Price Return

60%50%40%30%20%10%0%

-10%-20%-30%-40%-50%

ReturnInter-year Gain

ReturnInter-year Decline

1946 1956 1966 1976 1986 1996 2006 2013

THE RANGE OF INTER-YEAR GAINS AND LOSSES FOR THE BROADLY BASED U.S. S&P 500 INDEX (1946-2013)

Source: Capital Group

-200,000

-100,000

($ Mil.) 0

100,000

200,000

Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014

DOMESTIC EQUITY ROLLING 12-MONTH NET FLOWS (DECEMBER 2007-JULY 2014)

Source: Richard Bernstein Advisors LLC., Standard & Poor’s, Investment Company Institute® (ICI).

MURRAY LEITH, CFA

Vice President and Director, Investment Research

The Odlum Brown Model Portfolio was established on December 15, 1994 with a hypothetical investment of $250,000. 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.

With December upon us, here are a number of tax considerations and deadlines to remember for the 2014 tax year.

DON’T MISS THE 2013 DEADLINES!

Payments, Expenses and Other Transactions1. Tax-Loss SellingTax-loss selling entails selling investments with unrealized capital losses before year-end to offset capital gainsrealized during the year. Any remaining unused capital losses can be carried over to offset capital gains fromthe three preceding years or in any future year. While this strategy may be advantageous from a tax perspective,do not let the “tax tail wag the investment dog.”

Place your trades before Christmas. To ensure that your capital losses can be reported in the 2014 tax year,trades on Canadian securities exchanges must be placed no later than December 24, 2014 as trades typicallytake three business days to settle. Different dates may apply to foreign exchanges.

Beware of “superficial loss” rules. The capital loss on an investment will be denied if you buy an identical investment during the period that begins 30 days before and ends 30 days after the sale settlement date andyou still own that investment at the end of the period. These rules also apply if the identical investment is purchased by or transferred to your RRSP, RRIF, TFSA, spouse or a company controlled by you or your spouse.

If you are caught by the superficial loss rules, the denied loss amount is added to the adjusted cost base of theidentical investment purchased, in essence deferring the loss until the ultimate year of disposition.

2. Carrying ChargesInvestment related expenses such as fees to manage non-registered accounts and charges and interest paidon money borrowed for most investment purposes (other than in registered accounts) must be paid by December31 to be deductible in 2014.

Contributions to Registered Plans3. Registered Retirement Savings Plans (RRSPs)The maximum RRSP contribution limit for 2014 is $24,270. Check your 2013 Notice of Assessment from the CRA tofind your RRSP deduction limit (also known as “contribution room”) for 2014. If you have a considerable amount ofcontribution room or if you expect to be in a higher tax bracket in the near future, consider making the maximumcontribution this year, but claim the deduction over multiple years, depending on your expected taxable income.

Continued on page 4

3

For the 11th consecutive year, Odlum

Brown is proud to be the Presenting

Sponsor of the Bach Cantata Project:

J.S. Bach’s Christmas Oratorio –

Cantatas 1, 3, 6 at the Chan Centre

for the Performing Arts at UBC on

Sunday, December 21, at 3 PM.

Bach’s great Christmas Oratorio

begins and ends with a clamour of

trumpets and a great clatter of

kettledrums. Celebrate the holiday

season with a collection of North

America’s most celebrated period

instrumentalists and soloists in this

festive performance of three of

Bach’s six Christmas Oratorio

Cantatas.

Visit earlymusic.bc.ca for ticket

information.

Item Deadline Notes

Tax Installments December 15 To avoid interest and penalties

Tax-Loss Selling December 24 To reduce net taxable capital gains

Charitable Donations December 31 To receive credit against 2014 taxes

Carrying Charges December 31 To deduct from 2014 income

Medical Expenses December 31 To deduct from 2014 income

Contributions Deadline Notes

RRSP March 2, 2015 To deduct from 2014 income

If you turn 71 in 2014:

• Final RRSP Contribution December 31 To deduct from 2014 income

• Convert to RRIF or Annuity December 31 To comply with legislation

RESP December 31 To receive 2014 Canada Education Savings Grants

RDSP December 31 To receive 2014 Registered Disability Savings Grants & Bonds

TFSA – See note 7 regarding withdrawals

Year-End Tax Tips and Deadlines

DON‘T MISS THE 2014 DEADLINES!

4

DISCLAIMER & DISCLOSURE

Odlum Brown Limited is an independent, full-service investment firm focused on providing professional investment advice and objective research. We re-

spect your right to be informed of relationships with the issuers or strategies referred to in this report which might rea-sonably be expected to indicate potential conflicts of interestwith respect to the securities or any investment strategies dis-cussed or recommended in this report. We do not act as amarket maker in any securities and do not provide investmentbanking or advisory services to, or hold significant positionsin, the issuers covered by our research. Analysts and their associates may, from time to time, hold securities of issuersdiscussed or recommended in this report because they per-sonally have the conviction to follow their own research, butwe have implemented internal policies that impose restric-tions on when and how an Analyst may buy or sell securitiesthey 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 in-vestment banking services. We describe our research policiesin greater detail, including a description of our rating systemand how we disseminate our research, on the Odlum BrownLimited website at odlumbrown.com.

This report has been prepared by Odlum Brown Limited andis intended only for persons resident and located in all theprovinces and territories of Canada, where Odlum BrownLimited's services and products may lawfully be offered forsale, and therein only to clients of Odlum Brown Limited. Thisreport is not intended for distribution to, or use by, any personor entity in any jurisdiction or country including the UnitedStates, where such distribution or use would be contrary tolaw or regulation or which would subject Odlum Brown Limitedto any registration requirement within such jurisdiction or country. As no regard has been made as to the specific investment objectives, financial situation, and other particularcircumstances of any person who may receive this report,clients should seek the advice of a registered investment advisor and other professional advisors, as applicable, regard-ing the appropriateness of investing in any securities or anyinvestment 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 beencompiled from sources we believe to be reliable, however, wemake no guarantee, representation or warranty, expressed orimplied, as to such information’s accuracy or completeness.All opinions and estimates contained in this report, whetheror not our own, are based on assumptions we believe to bereasonable as of the date of the report and are subject tochange without notice.

Please note that, as at the date of this report, the ResearchAnalyst responsible for the recommendations herein, associ-ates of such Analyst and/or other individuals directly involvedin the preparation of this report may hold securities of the issuer(s) referred to directly or through derivatives.

No part of this publication may be reproduced without the ex-press written consent of Odlum Brown Limited. Odlum BrownLimited is a Member-Canadian Investor Protection Fund.

Odlum Brown Limited respects your time and your privacy. If you no longer wish us to retain and use your personal information preferring to have your name removed from ourmailing list, please let us know. For more information on ourPrivacy Policy please visit our website at odlumbrown.com.

Although the contribution deadline is typically on March 1, when a due date falls on a weekend or public holiday (as is the case in 2015), CRA considers your payment to be made on time if it is received on the nextbusiness day. Therefore, the 2014 contribution deadline will be March 2, 2015.

4. RRSP Contributions After Age 71Although you can no longer contribute to your own RRSP after December 31 of the year in which you turn 71, you can contribute to a spousal RRSP if you still have contribution room and your spouse or common-law partner is not older than 71 in the year of contribution.

5. Registered Education Savings Plans (RESPs)The federal government provides annual Canada Education Savings Grants (CESGs) of up to $500 with a lifetime CESG limit of $7,200 per beneficiary. Subject to the restriction outlined in the following paragraph,beneficiaries aged 17 or younger who have unused CESG carry-forward room may receive up to a maximumannual CESG of $1,000 if the account subscriber contributes $5,000 per year or more.

If your child turned 15 in 2014 and you have not contributed a minimum of $2,000 or at least $100 per year in any four years to date, December 31 is your last chance to contribute $2,000 or more to an RESP in order to be eligible for the CESG in 2014 through 2016 (ages 15-17).

6. Registered Disability Savings Plans (RDSPs)RDSPs are tax-deferred savings plans to help provide long-term savings for individuals who are eligible for thedisability tax credit. Lifetime contributions of up to $200,000 can be made until the beneficiary turns 59. Thereare no annual contribution limits and the contributions are not tax deductible.

The federal government provides assistance in the form of Canada Disability Savings Grants (CDSGs) andBonds (CDSBs) until the beneficiary turns 49:

•CDSGs of up to $3,500 per year with a lifetime limit of $70,000 are provided on a matching basis, based on the contribution amount and the beneficiary’s family income.

•CDSBs of up to $1,000 per year with a lifetime limit of $20,000 are provided to low-income beneficiaries. No contributions are required to receive the bond.

RDSP holders may wish to contribute to an RDSP by December 31 to receive government assistance for thecurrent year. Any unused CDSG and CDSB room, however, can be carried forward for up to 10 years.

7. Tax-Free Savings Accounts (TFSAs)There is no deadline for TFSA contributions as any unused contribution room is carried forward from one yearto the next. However, withdrawals in any given year do not increase TFSA contribution room until the followingcalendar year. Therefore, if you are planning to make a withdrawal in the near future, consider making it byDecember 31 to be able to re-contribute the withdrawn amount in 2015.

When TFSAs were introduced in 2009, the annual contribution limit was set at $5,000, indexed to inflation in$500 increments. Effective 2013, the annual contribution limit increased to $5,500. Therefore, if you have notmade any TFSA contributions to date, you could contribute up to a maximum of $31,000 in 2014.

MICHAEL EREZ, CPA, CGA, CFP

Manager Odlum Brown Financial Services Limited

Odlum Brown Financial Services Limited is a wholly-owned subsidiary of Odlum Brown Limited, offering life insurance products, retirement, estate and financial planning exclusively to Odlum Brown clients.

YEAR-END TAX TIPS AND DEADLINES Continued from page 3