The Triad Perspective

Triad Investment Management, LLC is a SEC-registered investment adviser based in Newport Beach, California.  We manage portfolios, including retirement and corporate accounts, and provide investment counsel to our select group of clients, which include:
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  • Affluent families and individuals
  • Corporate executives
  • Family offices
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I'm not a big fan of violent movies.  Give me a good comedy movie and I'm a happy--and laughing--camper.  But I have seen a few movies that are almost too tough to watch.
Robert De Niro is one of my favorite actors.  He's been in a few violent movies.  The Godfather.  The Deer Hunter.  Mean Streets. Goodfellas.  And then there's Cape Fear.  It's appropriately titled.  This is one scary movie.  It's tough to watch, but it's De Niro at his best.  As this photo demonstrates, De Niro ain't no Boy Scout in this movie:

The title of Cape Fear refers to an area along the coast of North Carolina where part of the movie takes place.  But there's another Cape Fear.  It's not nearly as exciting as a De Niro movie, but still it's worth discussing.
In the investment world, investments can be valued in a variety of ways.  One common way is the Price to Earnings (P/E) ratio.  Simply stated, the P/E ratio shows the cost of buying a dollar of earnings.  A P/E ratio of 15 means you're paying fifteen dollars for each dollar of earnings.  All things being equal you'd like to pay as little as you can.  So, clearly, lower Price to Earnings ratios are usually more desirable. 
The Cyclically Adjusted Price Earnings Ratio or CAPE was developed by economist Robert Schiller--yeah, the guy with the Nobel Prize--to smooth out the peaks and valleys of annual earnings data.  It compares overall stock market levels to the average earnings for the market over the past ten years.  Since earnings bounce around quite a bit in the short run, taking an average over a longer period should provide investors with a more useful measure of earnings, and with the CAPE ratio, valuations as well.
Ok, you say, what's the point of this?  Well, I'm getting there.  Look at the chart below.  As you can readily see, only twice before has the ratio of prices to the average of ten years' worth of earnings been this high.  Right before the 1929 stock market crash.  And right before the Internet Bubble crash of 2000.  Worse than a maniacal De Niro character, right?

We've been discussing this for a couple of years now, so maybe we're just way off base in pointing out the apparent risks.  That's quite possible, we're the first to admit.  And this is just an indicator, not a predictor.  Nevertheless, as an investor it's something to think about as you invest your hard-earned cash.
What are we doing in response?  For several years we've been investing in areas that we think are overlooked, neglected, depressed or even despised.  And our reward for doing so?  Not much yet.  These companies have in some cases stayed neglected, depressed and despised. 
I say yet.  The history of markets is things work or don't work, until things change.  Predicting when these changes will happen is impossible.  Often change happens with little warning.  All we can do is stick to our discipline.
Like De Niro.  Take a look at that picture of him again.  De Niro worked out six days a week for two to three hours each day for six months prior to filming.  During filming, he ramped up the workouts to five hours a night.  That's discipline.  And why he's one of the greats.  Discipline works in many aspects of life, whether it's Cape Fear the movie, or CAPE Fear, the stock market version.
-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 SEC-registered investment adviser. More information about us is included in our SEC Form ADV Part 2, which is available upon request.  

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