Vol III, No. 6 

July 2015   



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



The Misbehaving Investor



Thanks for reading this month's issue!


We want to let you know that we have launched the Triad Small Cap Value mutual fund (TSCVX). Click here to visit the Fund's website where you can learn more about the fund and download a copy of the Fund's prospectus.  


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.  Triad is also the Adviser to the Triad Small Cap Value (TSCVX) mutual fund.  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 June 30, 2015.  The Concentrated All-Cap Equity composite return, annualized and net of fees since inception, is 9.1% vs. 8.1% for the S&P 500 Index (April 30, 2008 to June 30, 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

Bad Company


Let me state upfront that I'm no biblical expert.  When Matthew says in the bible that "the last shall be first, and the first will be last" or, "blessed are the meek, for they will inherit the earth", rest assured I'm not the guy to decipher the message.  But I'm guessing he is referring to humility.  Which isn't a bad thing to possess, especially when dealing with markets.  I learned long ago, "if you don't have humility in the stock market, you haven't been investing long enough".  But I digress.  Let's examine first to last, or last to first.


The stock market can be a perverse place.  It declines at times for no apparent reason.  It can also rise for no reason, although investors and TV talking heads do a good job of creating reasons.  As a wise man once said, "it's a voting machine in the short-term and a weighing machine in the long-term."  Popular, well-known companies can be good investments.  But "popular" companies can also be lousy investments.  And "unpopular" companies with mediocre reputations can be great investments.  How is that possible?  I won't keep you in suspense.  The price you pay can be the great equalizer.


Some stock market studies have shown that at times the "best" companies are not always the very best investments.  A recent Barron's article (The Trader, April 11, 2015) demonstrated this perverse outcome.  The data revealed that the highest analyst-rated stocks had an average return of 9.5% per year.  The lowest rated stocks?  13.2% per year.  That's a whopper of a difference.  How can this be?


Simple.  Wall Street analysts carry lots of weight with investors.  Analysts are well-paid and like their jobs.  And want to keep them.  So, the safe bet for an analyst is to recommend-drum roll please-a relatively uncontroversial stock.   So analysts, being human, and also needing to pay the bills, tend to recommend a company when the skies are clear.  Sales are up.  Earnings are good.  The CEO is being lauded for brilliant moves.  He or she is on the cover of Barron's, Fortune or Forbes.  Trouble is, by that time the stock valuation could be in the stratosphere and future appreciation potential has gone bye-bye.  A "good" company just became a "bad" investment.  See "Dot-com bubble" on Wikipedia.org for the ugly details.


The opposite also occurs.  Since analysts don't like to stick out their analytical necks and risk the unemployment line, "troubled businesses" with temporary problems can be toxic waste.  They avoid these companies like the Black Death Plague (1346-1353) as long as problems persist.   And what do the low analyst ratings lead to?  Why, a fertile combination of investor hate, disgust and neglect, which can create undervaluation.  A "bad" company just became a "good" investment.


Just remember, the stock market isn't high school.  Too much popularity can be bad for your financial health.  Be careful before dating the stock market equivalent of the football team quarterback or the prom queen.  Extreme popularity can lead to overpriced merchandise.  Price can be the great equalizer, and we spend our time in the neglected aisle trying to find the bargains while avoiding the prom queens and quarterbacks.  Our investment "bible" dictates that we seek the meek, and endeavor to turn last to first.  
-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.



2Q 15
1 Year
3 Year
5 Year
Triad Concentrated All-Cap Equity
S&P 500 Index

As of June 30, 2015.  Results presented net of management fees.



© 2015 Triad Investment Management, LLC