Vol III, No. 2

March 2015   



A monthly commentary about the role of behavior (and misbehavior) in investing



The Misbehaving Investor

As Spring unfolds here (and hopefully unfolds elsewhere soon), we turn our attention in this month's issue to a popular topic in the investing world - Exchange Traded Funds, or ETFs. 


Also, we've added a blog on our website.  This will enable us to post periodic commentaries. It is available by clicking here: www.triadim.com/blog.  


As always, we encourage your comments and feedback. Please let us know what you think.


John Feb 5  

John Heldman, CFA

Partner/Portfolio Manager

Dave Hutchison, CFA
Partner/Portfolio Manager
About Us

Triad Investment Management manages all-cap, small-cap and balanced portfolios with a focus on Research, Behavior and Ethics.  We make investment decisions from 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 $138 million of assets under management as of December 31, 2014.  The Concentrated All-Cap Equity composite return, annualized and net of fees since inception, is 10.9% vs. 8.5% (April 30, 2008 to December 31, 2014).


Please review our Concentrated All-Cap Equity annual disclosure presentation and the important disclosures at the bottom of this issue. Past performance does not guarantee future results.

Triad Small 1-24

ETF: Exchange Traded Failure

Investing ain't easy, 
I'll be the first to admit.  There's lot of information out there, much not very important, and some that's very important.  That's the analytical side.  The emotional side is sometimes the biggest stumbling block.  We are wired to act irrationally at times, and we do.  This can be unhelpful if you're looking to retire early, or retire at all.


So what's a person to do?  For many individuals, sticking to a consistent savings program is at least as important as the return they earn.  This can add a degree of rationality as funds are added regularly when the natural tendency of most investors tends to lean toward adding more in good times and less in bad ones.


But where does one (or should one) make these regular investments?  One investment vehicle that's received a lot of recent media attention, including a Barron's cover story earlier this month, is Exchange-Traded Funds (ETFs).  Like index mutual funds, ETFs offer a low-cost way to invest in both broad market indexes (such as the S&P 500 Index) as well as more specialized areas such as Emerging Markets or Small Cap stocks.  Nothing wrong with the concept.


ETFs offer an additional bonus (or not as we'll see later):  unlike mutual funds that are only traded after the market closes, ETFs trade on exchanges (in other words, all day long).  And, cheaply.  


And here is where, in my experience, our little tale of do-it-yourself investing might go awry for investors.  If something can be done, it will be done.  Over and over. Since ETFs can be traded, they very likely will be traded.  Excessively.  


A little portfolio tweaking here and there.  Or gee, "I don't really think emerging markets are going to be good this year".  Or "technology stocks are soaring, I've got to buy a Tech ETF".  You get the idea.


It's my belief that investor behavior is the primary factor in investment results.  Warren Buffett wrote the following last year about stock investors, but he could have also said the same thing about those considering ETFs: 


"Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations and accompanying commentators delivering an implied message of "Don't just sit there, do something." For these investors, liquidity is transformed from the unqualified benefit it should be to a curse."

Remember this: in investing, the more decisions you make, the more chances of making mistakes.  Oh sure, some people will get the game figured out and trade ETFs successfully, but the vast majority won't.  And the extra liquidity of ETFs could actually contribute to their poor results.  An apparent advantage in reality becomes a disadvantage.


Considering costs in investing is important.  I think every investment should be considered after the impact of costs.  However, costs are not the only factor one should consider.   In my view, neglecting to consider the role that emotions and behavior play in investing is a mistake.


Just remember, your emotions can be your biggest enemy, and resolve to protect yourself--from yourself.  Failure is not, or should not, be an option. 


-John Heldman, CFA
Past performance does not guarantee future results. Results are presented net of fees and include the reinvestment of all income.  The opinions expressed herein are those of Triad Investment Management, LLC and are subject to change without notice. Consider the investment objectives, risks and expenses before investing. The information in this presentation should not be considered as a recommendation to buy or sell any particular security and should not be considered as investment advice of any kind. You should not assume that any securities discussed in this report are or will be profitable, or that recommendations we make in the future will be profitable or equal the performance of any securities discussed in this presentation. The report is based on data obtained from sources believed to be reliable but is not guaranteed as being accurate and does not purport to be a complete summary of the available data. Recommendations for the past twelve months are available upon request. In addition to clients, partners and employees or their family members may have a position in any securities mentioned herein. Triad Investment Management, LLC is a registered investment adviser. More information about us is included in our SEC Form ADV Part 2, which is available upon request.

Triad Investment Management, LLC claims compliance with the Global Investment Performance Standards (GIPS®). Triad has been independently verified by Ashland Partners & Company, LLP for the period from the strategy's inception, April 30, 2008, through December 31, 2014. Triad is an SEC-registered investment advisor. The composite includes all fully discretionary separately managed accounts that follow the firm's Concentrated All-Cap Equity investment strategy, including those accounts no longer with the firm. Triad's strategy is to invest in a concentrated portfolio (usually holding between 20 to 30 securities) of common stocks, unrestricted as to market capitalization, of both domestic and international companies. The U.S. Dollar is the currency used to express performance. Past performance is not a guarantee of future results, and there is a risk of loss in investing in equities. Results are presented net of fees and include the reinvestment of all income. Investments made by Triad for its clients differ significantly in comparison to the referenced indexes in terms of security holdings, industry weightings, and asset allocations. Accordingly, investment results and volatility will differ from those of the benchmarks. As of June 30, 2013, the Triad Equity Composite was renamed the Concentrated All-Cap Equity Composite.  For more information or for a copy of the firm's fully compliant presentation and the firm's list of composite descriptions, please contact us at (949) 679-3991.



4Q 14
1 Year
3 Year
5 Year
Triad Concentrated All-Cap Equity
S&P 500 Index

As of December 31, 2014.  Results presented net of management fees.



© 2015 Triad Investment Management, LLC