The Triad Perspective

Since our last issue, major market indices have recovered meaningfully. The S&P 500 Index and the small-cap Russell 2000 Index are both up just over 5% since then. In our view, rising oil prices have contributed to this stock market move (up over 20% since our last issue). Market valuations are reasonable in our opinion.

We believe that changes in stock prices tend to be more extreme than changes in business values, particularly in the short-run. These sharp moves can test the emotions of any investor. This month our essay addresses automated portfolio management and whether or not it can help with the behavioral side of investing (spoiler alert...not really).

John Heldman, CFA

Partner | Portfolio Manager

Dave Hutchison, CFA

Partner | Portfolio Manager

To Serve Man

One of my favorite Twilight Zone episodes is titled "To Serve Man." An alien arrives from a distant galaxy and humans don't know what to make of him. The visitor offers a book written in an unknown language. Meanwhile, governments scrutinize the alien's intentions. Finally, a code-breaker deciphers the title: "To Serve Man." Seems friendly enough.

Automated portfolio management systems known as "Robo Advisers" also seem friendly enough. They provide portfolio management advice without human interaction. For those intimidated by the process of hiring an investment adviser, or who are comfortable with a do-it-yourself approach, it's not a bad way to go.

If Robo Advisers can get someone on the road to financial security, they could prove worthwhile. Determining an asset allocation based upon age, retirement goals, financial assets and risk tolerance is fairly straightforward.

But staying on the road becomes difficult when the space between our ears gets filled up with irrational thoughts and fears. When markets are soaring or crashing, don't expect the Robo Adviser to offer much guidance. It's up to people to handle the emotional side of investing.

It's doubtful that a Robo Adviser will be able to shed much light on why other humans are making investment decisions. The decisions could be a rational response to global events, such as recession, war, terrorism, natural catastrophes, political upheaval, etc. Or the response could be mostly irrational, based upon the age-old cycles of greed and fear that dominate markets at times. Either way, the Robo Adviser will likely just sit there and blink at you, unable to offer much context to the current situation.

Even worse, if the investor hasn't given the Robo Adviser all of the right data it needs, this "garbage in, garbage out" phenomenon could lead to bad recommendations and potentially disappointing investment results. While Robo Advisers serve a niche of disciplined, go-it-alone investors, the great majority of people could benefit from investment counsel during troubled times. Or euphoric times.

In that Twilight Zone episode, host Rod Serling provides a twist for us, as usual. A cryptographer finally deciphers the alien language and discovers that the space visitor isn't so friendly after all. "To Serve Man" is nothing more than a cookbook. How to prepare humans...for dinner...alien dinner.

Let's hope that Robo Advisers don't do the same thing to individual investors' portfolios.

-John Heldman, CFA

About Triad

Triad Investment Management is a 100% employee-owned SEC-registered investment adviser. We serve families, individuals, & foundations. Triad manages all-cap, small-cap and balanced portfolios with a focus on Research, Behavior and Ethics. We serve as the Adviser to the Triad Small Cap Value Fund (symbol TSCVX). Learn more at www.triadim.com and www.triadfunds.com.

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 SEC-registered investment adviser. More information about us is included in our SEC Form ADV Part 2, which is available upon request.