Vol I, No. 7      

August 2013  

 

 

A monthly review for investors and their advisors about how the quirks of human behavior

drive investing...and what you can do about it

 

 

The Misbehaving Investor
     

I love to drive fast - but I do it on the racetrack, not around town.  Driving tends to bring out an example of herd behavior, where we drive faster or slower in part because others are doing it.

Investors (both individual and institutional in my experience) often follow this pattern, letting the market drive their decisions.  The results can be a lot more painful than a speeding ticket!

All the best,

 

John Feb 5    

John Heldman, CFA

President

 
About Us
Triad manages equity and balanced portfolios with a focus on absolute return and investor behavior. The firm is 100% employee owned.  New relationships for private clients and institutions begin at $1 million. 

Founded in 2008, Triad has $114 million of assets under management as of 6/30/13.  The Concentrated All-Cap Equity composite return, annualized and net of fees, since inception is 10.5% vs. 5.2% for the S&P 500 Index  (4/30/08 to 6/30/13).

For more information:

Dave Hutchison, CFA
Managing Director
(949) 679-3991
dhutchison@triadim.com

Please visit us at:
www.triadim.com




Baby You Can't Drive My Car

 

Driving is a wonderful metaphor for the investment world. Mostly rational behavior along with periodic craziness. While driving to work recently, I experienced a situation I've encountered before on the streets. I'm minding my own business, driving at the speed limit on a very familiar street (50 mph)-ok I was doing 52-when I noticed that many cars were rapidly approaching and whooshing by me. I checked my speedometer, and yes I was still driving around the speed limit. I had a momentary impulse to increase my speed to keep up with the others but realized that made no sense. Traffic school is not my idea of fun.

 

I've also experienced the opposite situation. I've noticed that occasionally I seem to be passing most of the other cars, despite remaining within the speed limit. And one thing you don't want to do is stick out as the fastest car on the road. That's a recipe for a speeding ticket. Just ask my 20-year old daughter Alyssa. But I digress. When I do notice that I'm driving faster than others, I slow down. I'm usually going the speed limit, but since most cars are going slower, my speed seems faster.

 

How does this relate to investing? On the streets drivers sometimes get caught up in their immediate surroundings and drive too fast, and occasionally too slow. Similarly, markets rise and fall. Investors can be overly influenced by the current environment and can become too optimistic, and sometimes too pessimistic. It's the nature of markets that, when people are involved, actions will carry too far in both directions. What's needed on streets and in markets is to understand the impact current events can have on our behavior and control their influence. In short, RESIST HERD BEHAVIOR. I know, boring. A little change of pace can be fun. But if you want excitement behind the wheel, go to the race track. And if you want excitement in investments-well, most of the time that's not a positive. "Gee honey, we just lost half of our life savings" is not the kind of excitement we're looking for.

 

Most people, interested in personal survival, usually avoid the temptation to drive too fast on the streets. However, investing can be a different story, where individuals sometimes engage in the financial equivalent of reckless driving. Our approach is to handle the investment world with BALANCE AND MODERATION, staying positive in depressed environments, and behaving cautiously when others get giddy. Staying within speed limits can help you avoid the investment equivalent of a ten car pile-up on the street.


Past performance is not a guarantee of future results.
Results are presented net of fees and include the reinvestment of all income.

     

2013 Triad Investment Management, LLC