Vol II, No. 9 

October 2014   



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

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



The Misbehaving Investor

A typical stereotype of an investment analyst is someone who builds spreadsheets and pores through numbers looking for the best company in which to invest.


This is part of it, but ultimately we believe investing means spending time understanding the people that run the business and assessing their skill and judgment.


John Feb 5  

John Heldman, CFA


Dave Hutchison, CFA
Managing Director
About Us

Triad Investment Management manages equity and balanced portfolios with a focus on Research, Behavior and Ethics.  We invest in companies with a business-buyer's perspective.  Founded in 2008, Triad is a 100% employee-owned SEC registered investment adviser.  Learn more at www.triadim.com


Triad has $136 million of assets under management as of September 30, 2014.  The Concentrated All-Cap Equity composite return, annualized and net of fees since inception, is 10.9% vs. 8.0%  for the S&P 500 Index  (April 30, 2008 to September 30, 2014). 

Please read the above performance in conjunction with our Concentrated All-Cap Equity composite presentation. Past performance does not guarantee future results.

(949) 679-3991

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The Elevator 


Like millions of people, I ride an elevator up to our office each day.  It's a daily routine for me and millions of others in the global game of commerce.  We take certain things for granted, such as an elevator, or who might be riding with us in the elevator.



Nearly every business is comprised of a mixture of tangible assets--factories, production equipment, inventory and vehicles--along with intangible assets including brands, patents, trademarks, reputation, business methodologies, or expertise. We're going to discuss the really soft stuff: reputation, business methods and expertise.  These intangible assets have enormous value, until Google figures out how to build learning robots and renders us all obsolete. 


Yes, some of the most important economic assets a company possesses are not listed on the financial statements.  But accounting is only an approximation of economic reality.  One of my favorite quotes is from Albert Einstein: "Not everything that counts can be counted, and not everything that can be counted counts."  Hey, he just described the accounting profession!


Certain businesses derive their economic value not from buildings, equipment and the like but from intangibles, including reputation, methodologies and expertise.  The real assets are the people who manage and operate the business.  In these businesses the valuable assets go up and down the elevator every night.


Businesses such as financial services--we can relate to this--are highly dependent upon the people who manage the business.  We've seen numerous examples of well-run and poorly-run financial businesses, and the primary distinction between the well-managed survivors and the road-kill is the quality of the people, the strength of the culture, risk-management, etc.  Soft concepts but hard realities.  It's all about the people running things.


For every well-run Wells Fargo there are too many Lehman Brothers, Washington Mutual, Bear Stearns, Fannie Mae, Freddie Mac, Wachovia or Countrywide Financial.  Financial crisis road-kill.  What they shared in common was a willingness to own poor quality assets combined with a further willingness to borrow excessively--leverage--that created a situation where a bit of trouble with asset quality magnified the damage due to their leveraged balance sheets.  


Large institutions undone by managers who mismanaged these firms.  It's a Darwininan process--the better-run firms managed through the crisis and survived.  The weaker players have joined the Dodo bird, the Saber-toothed Tiger and Tyrannosaurus Rex-in extinction.


Since we can't see inside a manager's head--again Google may eventually solve this problem--we pay lots of attention to the "track record" of managers in certain businesses where people can either create success or make a mess.

-John Heldman, CFA
Past performance does not guarantee future results.
Results are presented net of fees and include the reinvestment of all income.


2014 Triad Investment Management, LLC