Vol III, No. 9 

October 2015   

 

 

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

 

 

The Misbehaving Investor
     

  

 

Any action can have unintended consequences, sometimes causing more harm than good. 

 

This is true in a variety of areas, as we discuss in this month's issue.

 

The Triad Small Cap Value Fund (symbol TSCVX) is open to investors. Click here to visit the Fund's website where you can learn more about the Fund and download a copy of the 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 Fund (symbol TSCVX).  Founded in 2008, Triad is a 100% employee-owned SEC registered investment adviser.  Learn more at www.triadim.com. 

 

Triad managed $114 million as of September 30, 2015.  The Concentrated All-Cap Equity composite return, annualized and net of fees since inception, is 6.4% vs. 6.8% for the S&P 500 Index (April 30, 2008 to September 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

Risky Business

Four years later, the impacts from the Fukushima, Japan earthquake, tsunami and nuclear meltdown continue to be assessed and analyzed.
 
It's a little-known fact that the International Atomic Energy Agency has confirmed that no one--that's right, no one--was killed or even sickened by the radiation fallout.  But the law of unintended consequences did rear its ugly head.  Roughly 1,600 people died from the stress of evacuation from the area--many patients in hospitals and nursing homes who were hurriedly moved to schools and other places not equipped to properly care for them.  There were also suicides related to the stress of the event.
 
Clearly, such an event finds many people employing the effective "shoot first and ask questions later" approach.  Panic sets in and the impulse is to run.  Now.  Far away from apparent danger.  Fear of the unknown can be intense. Radiation can't be seen or measured very easily by the average person.  

Lacking factual information it's natural to assume the worst.  But scientists say that the worst-hit areas saw radiation levels that would have resulted in cumulative radiation over 4 years equal to only about one whole-body diagnostic scan each year.
 
Another factor behind the mass evacuation order could have been the tendency for government officials to avoid career risk.  In this situation, they were under a lot of pressure to act conventionally--that is to do what most people would say instinctively needed to be done--and evacuate.  

Had they recommended (correctly) that the best course of action was to remain in place, they would likely have been attacked in the court of public opinion (and perhaps other courts as well). 
 
We humans can be poor judges when it comes to assessing relative risks, whether it's radiation risks or stock market risks.  A proper assessment in the case of Fukushima might have concluded that very ill persons should remain in their hospitals or nursing homes, since the risk of relocation could be worse than radiation exposure risk.  But, when we don't have good information about the relative risks, we can make poor decisions.  
 
But sometimes the outcomes from taking an action are worse than no action at all.  And often, the worst case doesn't prevail.  How many times do we hear the talking heads on financial television warning us about another impending market meltdown?  Similar to economists' ability to predict recessions, a cynic might suggest these folks have predicted 10 of the last 2 crises.  These Chicken Littles are often quoted, never in doubt, and often wrong.  Investors who follow their advice could find themselves on the wrong side of market trends.
 
In our profession, the fear of career risk shows itself in the multitude of "closet indexed" investment portfolios that are often conventional (another word for comfortable) but not necessarily conservatively constructed to attempt to protect against loss of capital. 
                                                              
It's hard to make crucial decisions during a "fight or flight" moment when the wrong move could mean serious harm.  Fortunately for financial decisions, we're usually not faced with life or death situations.  Better outcomes can result from taking some time to assess the situation, and balancing the risks of taking action and not taking action.  As in Fukushima, it's almost always better to wait for the panic feeling to subside before committing to a course of action.
-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 June 30, 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.

 

 

%
3Q 15
YTD
1 Year
3 Year
5 Year
Inception
Triad Concentrated All-Cap Equity
(15.4)
(20.7)
(18.5)
2.6
6.9
6.4
S&P 500 Index
(6.4)
(5.3)
(0.6)
12.4
13.3
6.8

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

 

     

© 2015 Triad Investment Management, LLC