Vol I, No. 8       

September 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

It's an interesting paradox to me that most of us are naturally attuned to bargains in the store - a lower price or twice as much for the same price usually clicks right away.  Yet, investors don't often have that same interest in buying companies they know well when they are "on sale". 

All the best,


John Feb 5    

John Heldman, CFA


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

Please visit us at:

Buy One, Get One Free!


Act now! For a limited time you can get not just one, but two, even three for the price of one! Don't delay!


We've all experienced the psychological rush of finding a "great deal". Maybe not something for nothing, but for a lot less than usual.  However, the stock market is an unusual place where apparent bargains are often shunned. Many investors prefer merchandise--common stocks--that has recently appreciated in price. This psychological desire to seek validation from the stock market stems from two reasons. First, a lack of knowledge about how to value companies (hint: it's often not the stock price). Second, it's psychologically appealing to bet on a "winner" and hope the winning streak continues. This can lead to neglect and create bargain-priced merchandise.


So, Mr. or Mrs. Investor, how can you benefit from these conditions? The good news is you only need to do two things well. The bad news? Neither one is easy.


First, you must understand what you're "buying". Much like a shopper inspecting a retailers' two for one offer, successful investing requires a certain amount of knowledge and effort. We run across situations where a company might have three, four or more separate, distinct businesses. Some might be prospering, others not doing so well. If a company isn't firing on all cylinders, many investors will avoid the company. If the company operates in several unrelated businesses, figuring out the whole thing is more complicated still.


Second, knowledge about the "merchandise" is good, but it's not enough. There are plenty of smart competitors in our business. So we need an additional advantage. A behavioral advantage. One of the best advantages we've found is our willingness to go where others won't. How can this be an advantage?


Professional investors are well-paid and like their jobs. As a result, many are unwilling to "stick their neck out" and buy neglected or poorly understood "merchandise". They often stick with the well-known and well-performing. Of course, they pay a higher price for this certainty. And a higher price can mean lower future returns. The trick is to find "good merchandise" when it's temporarily on sale due to neglect or misunderstanding.


Washington Post Company fits this description, in our view. We've owned the common stock for just over three years and have bought more as prices have diverged from business reality. The company is best known for its eponymous Washington Post newspaper. It also owns a collection of cable TV systems scattered throughout the U.S., and a group of local television stations in various U.S. cities. And last but not least, Kaplan Higher Education, a global for-profit education company.


Now, everyone knows that newspapers are a dying industry, right? Who reads printed newspapers in the internet age? I do, but I'm a dinosaur. And cable TV has lots of competition these days, with AT&T, Verizon, DirecTV, Dish, Netflix, Hulu, Amazon--did I leave anyone out?-all competing for subscribers. Likewise local TV stations compete with all of these for viewer eyeballs. And the for-profit education industry has been called into the principal's office (the Federal government) over its reputation--deserved in many cases--for high tuition and poorly prepared graduates. So, why did we invest in this company?


When we first examined Washington Post, we analyzed each business segment and calculated a reasonable "private market" business value, based upon current and future prospects. We assigned zero value to the newspaper business; despite its journalistic significance, it's still losing money (Amazon founder Jeff Bezos recently agreed to buy the newspaper for $250 million, nice but not meaningful for our investment case).


We analyzed recent sale transactions for cable TV and television station businesses, which gave us some comfort our values were realistic. We believed the stock market value of the entire company when we made our initial investment was below our estimated values for just the cable TV and TV stations businesses. In effect, we were getting the for-profit education business, the newspaper business, excess balance sheet cash and an OVER-funded pension plan FOR FREE. Yes, Mr. Market, that occasionally irrational fellow who sets daily market prices, was giving us a BUY ONE, GET ONE FREE special.


We accepted Mr. Market's generosity then, and we continue to hold Washington Post as the current VALUE is still above the current PRICE. Of course, this is our opinion, and we could be wrong. But when you get a two for one offer, it's usually hard to go wrong. Like store merchandise, these two for one specials don't appear often, and eventually disappear. Our job is to act when others won't acknowledge an obvious--at least to us--bargain.

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