Vol III, No. 4

May 2015   



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



The Misbehaving Investor

Many of us have the tendency to focus far more on avoiding losses than on responsibly seeking gains in investing.


This applies in areas outside of investing as we discuss this month.


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.  Founded in 2008, Triad is a 100% employee-owned SEC registered investment adviser.  Learn more at www.triadim.com


Triad managed $131 million as of March 31, 2015.  The Concentrated All-Cap Equity composite return, annualized and net of fees since inception, is 9.7% vs. 8.3% for the S&P 500 Index (April 30, 2008 to March 31, 2015).


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

Carrot or Stick?


We all know-except maybe tobacco company lawyers and CEO's-that smoking cigarettes is not conducive to good long-term health.  Far from it...and thankfully the message has gotten out.  Adult smoking rates have declined from over 40% in the 1960's to below 20% today.


Yet many people choose to smoke, or more likely find it difficult to quit. Lots of things have been tried over the years, including willpower, hypnosis, acupuncture, patches and multi-billion dollar drugs.


But what about cold, hard cash?


Recently, the New York Times reported on a research study conducted to investigate whether financial incentives would assist smokers in kicking the habit.  2,500 CVS Pharmacy employees (including their friends and relatives) were randomly assigned to different programs and voluntarily decided if they would participate.  The programs were structured like this:


$150  $650
$0   $800


The first option required a $150 deposit which would be returned after six months of no smoking, along with a $650 reward.  However, the deposit would be forfeited if the person smoked during the six month period.  


The second option had no deposit but paid a higher $800 for six months of no smoking.  Only 14% of those randomly assigned to the first option ($150 deposit) agreed to sign up, compared with a 90% acceptance rate among people assigned to the second option (reward only).


Guess which group had a higher success rate?  Of course, the one with a higher payout of $800 versus $650, right?  Wrong.  The $800 reward only group's success rate was an abysmal 17% compared to over 50% for the $150 deposit group.


Why did the deposit group achieve a much higher success rate?  Something behavioral economists (yes, these people do exist) call Loss Aversion.  Which means that people feel the sting of losses much more heavily than the joy of gains.  So the deposit group put more emphasis on not losing their $150.  The no-deposit bunch didn't have any money at risk, and probably wasn't as psychologically committed to the program.


Investors can learn a thing or two from these experiments.


Many bad ideas begin with a good one.  Being concerned about losing money is a good idea.  But taken to the extreme, it can lead early retirees, pension plans, endowments and others with very long time horizons to fail to achieve long-term goals because they have hesitated to make the commitment to invest. 


It can also lead investors to sell stocks during bear markets, creating short-term pleasure but long-term pain when retirement time rolls around.


A better idea is to be objective about risks and rewards.  Balance out the concerns and risk of loss with the realistic potential for opportunity on the other side of the coin.  


-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 March 31, 2015. 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.



1Q 15
1 Year
3 Year
5 Year
Triad Concentrated All-Cap Equity
S&P 500 Index

As of March 31, 2015.  Results presented net of management fees.



© 2015 Triad Investment Management, LLC